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MONOPOLISTIC COMPETITION
A market structure characterized by many firms selling
differentiated products in an industry in which there is
free entry and exit.
EXAMPLES OF MONOPOLISTIC
COMPETITION
Banks
Sporting Goods
Radio Stations
Clothing
Computers
Health Spas
Frozen Foods
Apparel Stores
Canned Goods
Convenience Stores
Product differentiation
The differences in the product may be
of1.Product Quality
2.Services
3.Location
4.Advertisement and Packaging.
Product Quality:
Product Differentiation can take place in the form of
physical or in the form of qualitative differences.
Differences in functional features, materials, design
Example : economics text books
Services:
Services associated with product
Example: home delivery
Location:
Depending on the location or accessibility, products may
also be differentiated
Example: grocery stores and super markets, fuel stations on
highways.
Basis of Differentiation
Almost anything can be a basis of
differentiation:
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Horizontal Differentiation
Products vary in certain product characteristics to appeal
to distinct consumer groups.
Vertical Differentiation
Vertically differentiated products differ in quality.
Here goods present can be ordered according to their
objective quality and be ranked from the highest to the
lowest. We can say here that one good is "better" than
another.
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Class
Price
Crucial feature
Low
Low
Middle
Middle
High
High
Price
Crucial feature
Low
Middle
Middle-low
Middle-high
Class
Price
Extremely low
Very Low
Extremely High
Very high
Crucial feature
Mixed Differentiation
Complex markets are characterized both by horizontal and
vertical differentiation.
Eg, apparel, garments and shoes have a rich
combination
of
shapes,
colours,
materials,
complementarities, style etc. Here, the quality of the
materials can often be seen as a vertical differentiation but
shape would be horizontal.
Basis of Differentiation
1) Product Attributes
exploiting the actual product
2) Firm-Customer Relationships
exploiting relationships with customers
3) Firm Linkages
exploiting relationships within the firm
and/or relationships with other firms
Basis of Differentiation
Product Attributes
1)Product Features
Basis of Differentiation
Firm-Customer Relationships
1)Customization
Basis of Differentiation
Firm Linkages
1)Linkages among functions in the firm
Using circuit board designed in one division in another
division
2)Linkages With Other Firms
A sporting goods store sponsors a benefit race by
donating running shoes and receives free radio
advertising in return
3)Product Mix
Offering extended product mix to attract customers
4)Distribution Channels
Selling own products/service via different distribution
channels
5)Co branding
Starbucks inside a Barnes and Noble store
COMPETITIVE ADVANTAGE
A product differentiation strategy must meet the
VRIO criteria
Is it Valuable?
Is it Rare?
Is it costly to Imitate?
Is the firm Organized to exploit it?
if it is to create competitive advantage.
New technology
and innovation
Durability
Quality
Middle class
car
Versatile
Economic
High pricing
Status & styling
Intelligent
engineering
Marginal
Demand
and price
revenue
OUTPUT
Thank You! ^^
In case if the internet is connected:
http://www.investopedia.com/terms/p/product_differentiation.asp