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Large capital investments required for entry, including intellectual property laws, certain network effects, [38] absolute cost advantages, [39] reputation, advertisement dominance, [40] product differentiation, [41] brand reliance, and others, all contribute to keeping existing firms in the market and precluding new firms from entering.
The new trade theory suggests that the model of monopolistic competition plays a big role in explaining trade trends in trade patterns where product development drives product differentiation. Under monopolistic competition, firms engage in non-price competition to innovate and further boost their brand image.
In economics, successful product differentiation leads to competitive advantage and is inconsistent with the conditions for perfect competition, which include the requirement that the products of competing firms should be perfect substitutes. There are three types of product differentiation: Simple: based on a variety of characteristics
Oligopoly: The number of enterprises is small, entry and exit from the market are restricted, product attributes are different, and the demand curve is downward sloping and relatively inelastic. Oligopolies are usually found in industries in which initial capital requirements are high and existing companies have strong foothold in market share.
Product differentiation of incumbents ... industries with high barriers to entry often contain a monopoly or oligopoly with dominant power in terms of price. This ...
The oligopoly considers price cuts to be a dangerous strategy. Businesses depend on each other. Under this market structure, the differentiation of products may or may not exist. [9] The product they sell may or may not be differentiated and there are barriers to entry: natural, cost, market size or dissuasive strategies.
In these alternative models of oligopoly, a small number of firms earn positive profits by charging prices above cost. Suppose two firms, A and B, sell a homogeneous commodity, each with the same cost of production and distribution, so that customers choose the product solely on the basis of price. It follows that demand is infinitely price ...
Competition bolsters product differentiation as businesses try to innovate and entice consumers to gain a higher market share and increase profit. It helps in improving the processes and productivity as businesses strive to perform better than competitors with limited resources.