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Product Launching in Monopolistic Competition

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In the presence of excess capacity, firms sometimes launch new brands in an effort to increase their profits. Why would a monopolist not launch a new brand? Why do you think that launching a new brand is often done in monopolistic competition? Has your firm launched a new brand (provided a slightly differentiated service) in an effort to increase profits? Should it do/have done so? Why or why not?

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Solution Summary

The solution discusses the reasons why a monopolist does not launch a new brand and why it is done in monopolistic competition. An example is given on a firm launching a new brand and it is analyzed if it was a correct move to do it or not. References included.

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There are many sellers in monopolistic competition and each firm in a certain type of market sells only a small share of the entire industry's output Even if the firms are selling similar products, each of them sells a type of product that is slightly different from other available substitutes. There is an extreme competition in the market and each firm aims to have some monopoly power with its unique product offering.

Launching a new product in the market is the last option that a monopolist can do because it is time consuming and the most expensive as product development takes time. Catch-up and real innovation are ...

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