What's the differences in pricing, product design, and advertising decision between a perfectly competitive market and a monopolistically competitive market?The question is in regards to corporate...

What's the differences in pricing, product design, and advertising decision between a perfectly competitive market and a monopolistically competitive market?

The question is in regards to corporate executive decisions.

Asked on by hopsey

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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The difference is that these decisions essentially do not exist in a perfectly competitive market.  In perfect competition, the product is homogeneous.  Everyone's product is the same so there is no need for product design.  There is also no need and no use for advertising because there is nothing to differentiate one firm's product from another's.  The firm in perfect competition is a price taker.  It can only charge the market price so there are no pricing decisions.

In monopolistic competition, none of this is true.  Products are differentiated so decisions must be made about how to design them to be distinctive and how to advertise them.  Firms can set their own prices so there are decisions to be made there as well.  This is very different than the situation in perfect competition. 

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