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,...