As product differentiation increases, the price elasticity of demand falls, and the firm increases its market power.False

Question

Quizplus · Accepted Answer

This statement is true. When a product becomes more differentiated, it becomes less substitutable with other products, causing consumers to have fewer viable alternatives. As a result, the price elasticity of demand decreases, which means the firm can increase its price without losing too many customers. This gives the firm increased market power.

As Product Differentiation Increases, the Price Elasticity of Demand Falls