Monopolistic competition Assignment Example | Topics and Well Written Essays - 250 words

Monopolistic competition - Assignment Example Differentiation can help a company to create a market niche and set a price for a product, which will exceed its marginal costs, and thus will help a company to increase its economic profit in the short-run period (Mankiw, 2011). Product differentiation is considered to be one of the barriers for companies to market entry, as they will have to win the loyalty of the customers to a certain product. However, differentiation in monopolistic competition is not so significant and cannot exclude other products as substitutes (Mankiw, 2011). One of the examples of a company in monopolistic competition is Reed’s Dairy – a farm, which produces dairy products in Idaho Falls, Idaho. Reed’s Dairy used differentiation as a strategy to gain customers loyalty, get additional market niche and increase its profit. Real differentiation was used by Reed’s Dairy, as the farm started to produce hormone free milk and other dairy products. Besides the company offered its customers ice-cream, produced directly at the farm. Reed’s Dairy also used perceived differentiation, as it advertised its products as the best, delicious and most fresh. The company uses its website, facebook page and other means to advertise themselves and communicate with the customers (Reed’s