Imperfect Competition

The firm’s products become perfect substitutes for those offered by competitors rendering differentiation efforts useless.

It may gain some degree of pricing power and be able to charge higher than marginal cost for its product due to brand loyalty or perceived quality differences.

Profit maximization becomes unattainable as costs associated with differentiation always outweigh additional revenues generated.

Product differentiation leads directly and solely into turning it into a pure monopoly within the industry.

Monopoly

Oligopoly

Monopolistic competition

Perfect competition

To decide how best to allocate their finite resources among alternative uses.

Because they need to follow strict environmental regulations exclusively.

Since they can always rely on government subsidies when facing shortages.

To create perfect competition within the market automatically.

Price-taking behavior

Non-price competition

Price discrimination

High fixed costs

The firm’s total revenues will increase substantially as consumers switch spending from higher-priced complements.

Its products immediately transform into a substitute good, negating the need for any adjustment in marketing or production.

Demand for the firm’s product may decrease due to the combined goods becoming more expensive.

The firm’s demand curve will shift inward, becoming perfectly inelastic regardless of changes in the market for complements.

Price decreases and output increases.

Both price and output decrease.

Price increases and output remains unchanged.

Price remains unchanged and output decreases.

Price-taking behavior

Higher barriers to entry

Non-price competition

Greater demand than marginal revenue

It would decrease the quantity of goods sold.

It would have no effect on the quantity of goods sold.

It would increase the quantity of goods sold.

It would create a surplus of goods in the market.

A price floor below the marginal revenue would have no effect on the marginal cost but increase production level.

The price floor would create a surplus similar to a competitive market, reducing marginal costs and increasing production.

This would result in increased production and lower marginal costs as firms scale up.

The monopolist would decrease production, leading to correspondingly higher average costs.

Monopolistic competition

Monopoly

Perfect competition

Oligopoly