Question

What is meant by product differentiation ? To which market is it relevant ? Explain three features of this market.

Answer 1

• Product differentiation is when buyers of product differentiate between the same products produced by different firms and therefore they are willing to pay a different price for it.
• It is relevant to the monopolistic market situation.
  

Its features are:

• There are large number of sellers who sell closely related but not homogeneous products.
• The firms are free to exit or enter the industry as per their wish.
• Buyers and sellers do not have perfect knowledge of the market conditions.