Final answer:
A brand extension is when a company uses its existing brand name to enter a new market segment within its product class, often involving a new style, flavor, or product variation. This is a common strategy in monopolistic competition, allowing firms to leverage brand equity while competing with a variety of other brands.
Step-by-step explanation:
A brand extension is the practice of using a current brand name to enter a new market segment in its product class. This strategy allows a firm to utilize its existing brand equity to introduce additional products, which can often be a flavor or brand name variation. This is an important concept in the realm of monopolistic competition, where products are differentiated by style, flavor, or brand name, yet the firms compete with each other by offering these different options.
In monopolistic competition, a business has a mini-monopoly over its specific product version, but still faces tough competition because consumers can choose from other styles and flavors marketed under different brand names. The dynamic of monopolistic competition illustrates how firms try to carve out a niche for their products while facing the broader competitive landscape.