Monopolistic Competition

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 The market type most consumers are familiar with

is monopolistic competition a most consumer goods meets the definition of this market  The key concept here is the companies make their

products slightly different to appeal to varying consumer tastes. Most of these products can be made in an endless variety.

 Despite elaborate advertising claims, many

consumer products only vary in color, texture, and scent. All soaps perform equally well as do all cold remedies.  So why spend billions on advertising. If I can

convince you that my coffee is better because it has a darker richer color, then you will pay a bit more for it.

 If I convince you that only sophisticated

people drink this brand of coffee and you will impress other people if you serve it, you will pay a bit more for it.  If I convince you that your sex life will take

on a whole new meaning if you use my brand of coffee, you’ll pay a lot more for it.

 Of course, no one takes these claims literally, but

advertising is trying to create a subconscious feeling when you shop for the product.  The idea is to only try to sell the product, such as

shampoo, only to a subset of people such as people, who for example, think their hair is oily.  This is why the same company puts out multiple

brands and multiple variations of each brand.

 In the short run these markets look like mini

monopolies as illustrated on page 225.
 In the long run any successful idea will be

copied, thereby eroding any economic profits.

 Any company with a new variation of a product

that the public likes, such as clear products, remember Pepsi Clear a few years ago, will have a monopoly position and can charge a price that produces economic profits.  Needless to say if Pepsi Clear is a success,...
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