shift from monopolistic competition to perfect competition

If everyone in the economy wore only blue jeans, ate only white bread, and drank only tap water, then the markets for clothing, food, and drink would be much closer to perfectly competitive.

The concept of differentiated products is closely related to the degree of variety that is available. Advertising can play a role in shaping these intangible preferences. For example, many people could not tell the difference in taste between common varieties of ketchup or mayonnaise if they were blindfolded but, because of past habits and advertising, they have strong preferences for certain brands. Finally, product differentiation may occur in the minds of buyers. Some intangible aspects may be promises like a guarantee of satisfaction or money back, a reputation for high quality, services like free delivery, or offering a loan to purchase the product.

Intangible aspects can differentiate a product, too. A supplier to an automobile manufacturer may find that it is an advantage to locate close to the car factory. For example, a gas station located at a heavily traveled intersection can probably sell more gas, because more cars drive by that corner. A firm’s location can also create a difference between producers. Physical aspects of a product include all the phrases you hear in advertisements: unbreakable bottle, nonstick surface, freezer-to-microwave, non-shrink, extra spicy, newly redesigned for your comfort. We call products that are distinctive in one of these ways differentiated products. Differentiated ProductsĪ firm can try to make its products different from those of its competitors in several ways: physical aspects of the product, location from which it sells the product, intangible aspects of the product, and perceptions of the product. However, firms producing such products must also compete with other styles and flavors and brand names. When products are distinctive, each firm has a mini-monopoly on its particular style or flavor or brand name. There are over 600,000 restaurants in the United States. Examples include stores that sell different styles of clothing restaurants or grocery stores that sell a variety of food and even products like golf balls or beer that may be at least somewhat similar but differ in public perception because of advertising and brand names. Monopolistic competition involves many firms competing against each other, but selling products that are distinctive in some way. 9 Monopolistic Competition 9.1 an Introduction to monopolistic competition

Shift from monopolistic competition to perfect competition