Successful product differentiation reduces the elasticity of demand for a firm's product and helps to build consumer loyalty in monopolistically competitive markets.

Question

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Successful product differentiation makes a firm's product unique and distinct from its competitors, which reduces the willingness of consumers to switch to a substitute product even if the price increases slightly. This reduced elasticity of demand translates into higher pricing power and increased profitability for the firm. Additionally, product differentiation helps to build consumer loyalty as consumers become attached to the unique features and benefits offered by the firm's product.

Successful Product Differentiation Reduces the Elasticity of Demand for a Firm's