Disadvantages of product differentiation , Managerial Economics

Assignment Help:

Disadvantages of product differentiation 

a) Product differentiation generally reduces the degree of competition in the market.  It does this in two ways:

         i.         It reduces competition amongst existing firms because consumers are reluctant to substitute one product for another, since they have developed brand loyalty.

          ii.        It makes it more difficult for new firms to enter the industry in the long run if the consumers are already loyal to existing products.

b)  All the effort and expense that the firms put into product differentiation are wasteful.  Too much is spent on packaging, advertising and design changes.  The price of goods could have been reduced instead.

c)  Too many brands on the market, produced by large number of firms, could prevent the realization of full economies of scale in the production of goods.

d)  Since the firms cannot expand their output to the level of minimum average cost output without making a loss, the "excess capacity theorem" predicts that industries marked by monopolistic competition will always tend to have excess capacity i.e. output is at less than capacity and price is above the average cost.


Related Discussions:- Disadvantages of product differentiation

PRINCIPLES, WHAT ARE THE PRINCIPLES OF MANGERIAL ECONOMICS

WHAT ARE THE PRINCIPLES OF MANGERIAL ECONOMICS

Managerial principles, managerial principles to consider when determining l...

managerial principles to consider when determining level of output of afirm

Nature of demand curves and elasticity, Usually, elasticity of a demand cur...

Usually, elasticity of a demand curve throughout its length isn't the same (Fig. below). It varies between 0 and ∞, or in other words, 0 ≤ e p ≥ ∞ In some cases, though, the

Proportion of income spent on a commodity, Q. Proportion of Income Spent on...

Q. Proportion of Income Spent on a Commodity? Another characteristic that has an impact on the elasticity of demand for a commodity is proportion of income that consumers use u

Monetary policy, Monetary Policy Meaning of Economic Growth: The primary...

Monetary Policy Meaning of Economic Growth: The primary function of an whether socialist or capitalist is to satisfy people maximum wants. It must produce consumer goods to make

What is the efficient level of the public good, Consider an economy with tw...

Consider an economy with two individuals. Individual 1 has (inverse) demand curve for a public good given by P1=60-2Q1, While individual 2 has (inverse) demand curve for the public

National income and standards of living, NATIONAL INCOME AND STANDARDS OF L...

NATIONAL INCOME AND STANDARDS OF LIVING Standard of living refers to the quantity of goods and services enjoyed by a person. These goods may be provided publicly, such as in t

Opportunity costs, When Burton Cummings graduated with honors from the Cana...

When Burton Cummings graduated with honors from the Canadian Trucking Academy, his father gave him a $350,000 tractor-trailer rig. Recently, Burton was boasting to some fellow truc

What is production isoquant, Q. What is Production Isoquant? An isoquan...

Q. What is Production Isoquant? An isoquant demonstrates all those combinations of factors that produce the same level of output. An isoquant is also called as equal product cu

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd