Product Differentiation Case Study

Question No. 1

INTRODUCTION

Market structure is the organizational characteristics of the market. Market structure studies the number of firms in the market, market share of the firms, nature of competition, pricing, types of consumers, product differentiation, et cetera. Product differentiation deals with making changes in the marketing mix of a product so as to differentiate it from whatever the competition is offering OR to offer a product which stands out in the market (Bhasin, 2016). In economics, there are basic 4 types of market structure. They are perfect competition, monopoly, oligopoly and monopolistic competition. Here, we are going to explain the product differentiation of the firms in each type of market structure.

ANALYSIS

Market is changing all the time and product differentiation is the only factor that maximizes the firm’s profit. But once-off expenditure on product differentiation is not enough to maximizes the profit. When the market is changing, the demand, taste and preference of the consumer also changes. So, the firm should make the product differentiation according to the demand, taste and preference of the consumer. Unique product alone doesn’t guarantee higher sales and maximizes profits. In any market, a product must satisfy the wants, taste and preference of the consumers.

There is no competition and barrier to entry in this market. I think in monopoly market, once-off expenditure on product differentiation is enough to guarantee the firm’s ability to maximize economic profit in the future. For example, De Beers was the longest lived monopolies in the diamond industry. There was no any product differentiation in the product of De Beers. Later some other companies also entered the market and due to the increased competition, De Beers has started to bring product differentiation on top quality of diamonds. The profit for monopoly market is shown in the figure