Question

Glen found three brands of earbuds that have the specifications he wants. The three pairs of earbuds looked a bit different from each other, but Glen knew they would perform similarly. Still, each company offered its earbuds at a different price. What economic concept does this situation represent? A. Collusion B. Product differentiation C. Price-fixing D. Natural monopoly

Answer 1

Product differentiation is a tactic available to companies competing in the monopolistic competition system. It is an economic model where few companies offer the same product, but with differentiations. Thus, companies in this competitive model have some power to influence prices. In addition to the headphone market, a good example of perfect competition is the toothpaste market, where companies launch the same product but with differentiations. For example, toothpaste with whitening.

Answer 2

This is an example of product differentiation. There are many brands and companies, and each of them fight for the best price while making the best profit. The products are similar, but the only difference are the pricing of the product.