The concept of product differentiation generally assumes that the number of firms that have been able to differentiate their products in a particular way is, at some point in time, less than the number of firms needed to generate perfect competition dynamics.

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Product differentiation implies that firms offer products that are perceived as different by consumers, thus generating market power that allows them to charge higher prices than in a perfectly competitive market. In a perfectly competitive market, many firms offer homogeneous products, leading to price-taking behavior and zero economic profit in the long run. Therefore, product differentiation and perfect competition are opposite concepts, and the former requires a smaller number of firms than the latter to function.

The Concept of Product Differentiation Generally Assumes That the Number