Disadvantages of product differentiation , Managerial Economics

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.

Posted Date: 11/28/2012 5:35:31 AM | Location : United States







Related Discussions:- Disadvantages of product differentiation , Assignment Help, Ask Question on Disadvantages of product differentiation , Get Answer, Expert's Help, Disadvantages of product differentiation Discussions

Write discussion on Disadvantages of product differentiation
Your posts are moderated
Related Questions
The Barcelona Football Club is considering the signing of a player of international fame. The problem is that the player has a reputation for having a weak knee. The probability th

What is decreasing marginal cost? All additional lawn mowed generates less benefit than the earlier lawn à along with decreasing marginal benefit; every additional unit generat

The demand curve for the product of a monopolist is a straight line such that quantity just falls to zero at a price of Rs 20 per unit and that the maximum quantity (at zero price)

wHAT IS THE SIGNIFICANCE OF EXPECTATION ELASTICITY ?

The significance of behavioural approach is difficult to assess. It provides useful insights into some aspects of business behaviour. March and Cyert have claimed considerable shor

THE BALANCING ITEM Since for ever position entry in the current and capital accounts there is a corresponding negative entry in the monetary account, and for every negative en

Liquidity and the multiple contraction of deposits Many of the instruments of monetary policy depend upon limiting liquidity, which has a multiple effect upon bank' deposits t

NON-ACCELERATING INFLATION RATE OF UNEMPLOYMENT   During 1970s economists encountered a puzzle  in  the sense that  inflation and unemployment  data  did not  fit  into the Phi

Significance of managerial economics Industrial and Business enterprises aim at earning maximum proceeds. In order to attain this objective, a managerial executive has to take

CAPITAL ACCOUNT This records all transactions arising from capital movements into and out of the country.  There are a variety of such capital flows recorded, namely: i.