Identify two factors that give a firm market power under monopolistic competition.

How do these
factors interact?

Explain with a relevant case study in the context of Bangladesh (or your home country if you are not
from Bangladesh).

Answer to the question answer 1

Monopolistic competition is a market condition in which there are many suppliers of a
particular product, but each seller's product is distinct from the product of every other seller in
the eyes of the consumer.
I identified two factors that give a firm power under monopolistic competition is,
1.Product Differentiation
2. Brand loyalty

 Product differentiation: Product differentiation refers to all characteristics that aid in

distinguishing one firm's product from that of another. This distinction can be realistic
(technical) or artificial psychological (non-technical).

How Product differentiation can get a firm power:

In monopoly market firm take different steps for create an image in customer mind for capture
the market share, they do advertise, short videos, promotional activities and take different
marketing tools and step for reaching people with their products. They set an image of their
product and try to differentiate from others. Cost minimizing, quality products, also helps them
to capture power and having benefited for doing business in the monopolistic competition.
For Example, in prince Bazar recently I visited and saw that their bakery items are highly-priced
rather than the others bakery items. People still buy it and almost all items have demand but
especially bakery cakes like Ovaltine cakes are sold highly and people love it & in beverage
items “Prince Borhani” are sold high in numbers. The reason is they differentiate their products
(quality, reliability, taste, packing) which helps them to capture market power and create an
illusion about the brand. With this power, they set a high price for these items and still people
love it to buy. Still, outside confectionary shops people can get other bakery cake in 120/- but
they love to buy this cake in 180/- & other companies like (Arong, Muktar) sell Burhani in 60tk
but they sell it 80tk per litter. Which is costly but they differentiate their products by quality,
taste, and brand it as a brand. People are having it and it gives them market power under
monopolistic competition. And this in the Simple type of product differentiation.
Another the Simple type of product differentiation example is, LUX soap is top selling products
because they have variation. They produce different soaps which is highly differentiate than
other soap & LUX can find anywhere in the country. Its visibility in all shops. People took it
because easily available, price is not that much & also LUX have good brand value. They hold
the maximum soap market share in soap market of Bangladesh. No other soaps can beat
because for this differentiation.

Brand Loyalty: In this case, I think brand loyalty is another factor. Brand Loyalty can achieve by
providing quality services & product. It can be done by giving many promotions, incentives,
customer interaction, valuing customer choices etc. Loyalty does not come in a second. It has
achieved day by day.
For example, People who use intel will not want to use Rygen. Because Intel is doing business
for more than decades and they set an image in customers' minds as “Intel is best”. Suppose
someone wants to buy a PC, Father or senior members refer to get Intel because they can trust
Intel for using it from the very beginning. Intel set their brand image to their customer that they
are sophisticated with good quality chips with standard performance. They capture the most
part of the technology field share and do monopolistic business day by day. After Rygen and
others company came, it became tough to hold the market shares but still intel can hold it for
the brand loyalty. With that help they did not lose that much business.
In the Bangladeshi context, when you go for having your monthly grocery Bazar, always you go
to your selected whole sale shops. You know this guy will give you fresh and solid products
rather than other shops may not provide you that much support or give you bad products. This
is a sign of brand loyalty. Sometimes this shop owners get highly benefited from you for having
extra payment but still, you will go next time because of trust. It gives them power. It also
happens for the vegetable’s seller also. People go them
People who use TOYOTA don’t want to buy HONDA. They know HONDA provides the best
design where Toyota will provide the same model with no change. Still, people trust TOYOTA
for believing that it will be long-lasting and cost-efficient with medium resale value in
Bangladesh.
So, brand loyalty is giving power to a firm or person under monopolistic competition.

Relevant Examples in Bangladeshi context

I have already discussed. For further more discussion I will give some other examples,
Walton is the largest tech company in Bangladesh, they produce different products for different
segments. Before coming Walton, we can see China or others country capture the market and
control the price of products according their supply and demand. Walton breaks this monopoly
by stepping in into the deshi market. They give low price products with quality service. They
segmented their market according to that they give products to their customers. For this
reason, many electronic items price is low now and market is sustainable.
Suppose in rural area usage of refrigerator is a high-end product not only rural in urban are low
middle-class people have to think twice before buying refrigerator. Walton offers only 17,500/-
refrigerator with many options (flowers designed, color various). People are buying it madly, in
that case there is other company like Minister doesn’t produces this refrigerator in this low
price and service. Also, Walton has AC, TV, Fan, Room heater, blender not only that customer
can find Mosquito bat also. They capture the all electronics products and set the good image of
customer so that after perfect differentiae Walton achieve loyal customer who did not buy
China product, they buy electronics product from Walton. Because they know Walton is a brand
and they have excellence of service with good price products.
Recently Samsung refrigerator has decrease sales only because of not providing customer
service. They did not listen their customers, Walton took it as a stair and utilize it. It gives them
power to play in monopolistic competition.

bKash is the first MFC company. They were doing business in Bangladesh for probably 10years.
They were the one in the market and after NAGAD,UPAY came into it bKash still capture market
for variation services according customer needs, largest merchant holder, different level agent
who provide service & also digitally 24/7 high responsive customer service. NAGAD successfully
capture some portion of market after getting various kind of promo and activities like 9.99 cash
out charge, but customer always spend more for using bKash app just for brand loyalty,
reliability and services.