Monopolistic competition, in theory, is supposed to have zero economic profit in
ID: 1214247 • Letter: M
Question
Monopolistic competition, in theory, is supposed to have zero economic profit in the long-run like perfect competition because of its free entry and free exit condition. But what gives "hope" to monopolistic competition is that the firms can strive to differentiate their products from others and retain some market power for their "unique" offering and consequently attempt to hold on to some economic profit in the long-run as well. The trick (?) is, however, that differentiation may be for real or simply in the minds of the consumers. As long as consumers THINK the product is different from others, the product WILL be different and they will be willing to pay what premium there may be in the price and make the demand more inelastic!
Check out this rather amusing video:
http://www.npr.org/sections/thesalt/2014/10/23/358324106/don-t-mock-these-organic-food-experts-for-praising-mcdonald-s?utm_source=npr_newsletter&utm_medium=email&utm_content=20141026&utm_campaign=mostemailed&utm_term=nprnews
Can you think of any good or service that you think are essentially identical but some view as different and superior because of the brand? OR a good or service that people think are about the same, but you believe are indeed different and superior if people only knew better? Please justify your answer with an explanation.
Explanation / Answer
Recently, I have bought an Allen Solly trouser. After one wash only it got faded then what is the point of buying it. Many time it happens that copies of a product are more long lasting than the orginal one. It is all there in the mind of consumer. However, in the case of eatables and cosmetic, i would suggest to go for branded stuff. As Loreal, products of loreal are reliable and whatever they sell, they sell it with a guarantee. Similarly, electronic items (samsung, hitachi etc.). But on clothes it is a wastage of money. Still in India, expensive brands are doing business as we are influenced by the western culture.