Chapter Introduction
MODULE 68
Product Differentiation and Advertising
In this Module, you will learn to:
• Explain why oligopolists and monopolistic competitors differentiate their products
• Discuss the economic significance of advertising and brand names
AP® Exam Tip
Product differentiation allows oligopolists and monopolistic competitors to decrease competition, increase market power, and ultimately increase sales.
In Module 66 we saw that product differentiation often plays an important role in oligopolistic industries. In such industries, product differentiation reduces the intensity of competition between firms when tacit collusion cannot be achieved. Product differentiation plays an even more crucial role in monopolistically competitive industries. Because tacit collusion is virtually impossible when there are many producers, product differentiation is the only way monopolistically competitive firms can acquire some market power. In this module, we look at how oligopolists and monopolistic competitors differentiate their products in order to maximize profits.