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What is Product Differentiation?

Here we understand the Concept of Product Differentiation in detailed.

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What is Product Differentiation?
Product Differentiation is one of the most important characteristics of Monopolistic competition. It was introduced by Professor Chamberlin. According to him, the distinguishing feature of monopolistic competition which makes it a blending of competition and monopoly is the differentiation of products. It means that various firms under monopolistic competition product not homogeneous or identical products but differentiated products which are closely related to each other, that is, which are close substitutes for each other, but are not perfect substitutes for each other.
Product differentiation does not mean that the products of the various firms are different, they are only slightly different so that they are quite similar and serve as close substitutes for each other.
In other words, under monopolistic competition, products of the various firms are similar but not identical or homogeneous. For example, there are various manufactures of tooth paste in India which product different brands. Same way, different brands of soap and different brands of electric fans are some of the example of product differentiation.
Product differentiation is based on the following factors:
  1. First, It is based upon certain feature of the product itself such as exclusive trade marks, trade names and patented features. Special types of attractive packing and wrapping and differences in quality, design, color or style of the product also bring about such differentiation. Differences in the quality of the material used, workmanship etc. are also important for production differentiation.
  2. Second, It is based upon the conditions surrounding the sale of the product. It implies the firms offer to their customers supplementary and other services alongwith the sale of the product. These services include home delivery of articles, credit facilities, guarantee of repairs, etc. This means that product is differentiated if the services by the firm in the process of selling are not identical with those rendered by other firm.
  3. It is also brought about through advertisement, salesmanship, publicity and propaganda. It is called as sales promotion. These create real or imaginary differences in the minds of the customers about the different products and they differentiated the product of one firm from that of the other firms. For eg, some of the buyers rightly or wrongly feel that Usha fan is different from Orient fan.  Means those products, though differentiated are close substitutes for each other, the differentiation has been brought by the firms through advertisements, publicity etc.

What is Product differentiation?
Main features of Monopolistic Competition
Monopolistic Competition - Product Differentiation.
Tech writer at NewsandStory