profits.

The Benefits of Variety and Product Differentiation

Even though monopolistic competition does not provide productive efficiency or allocative efficiency, it does

have benefits of its own. Product differentiation is based on variety and innovation. Most people would prefer

to live in an economy with many kinds of clothes, foods, and car styles; not in a world of perfect competition

where everyone will always wear blue jeans and white shirts, eat only spaghetti with plain red sauce, and drive

an identical model of car. Most people would prefer to live in an economy where firms are struggling to figure

out ways of attracting customers by methods like friendlier service, free delivery, guarantees of quality,

variations on existing products, and a better shopping experience.

Economists have struggled, with only partial success, to address the question of whether a market-oriented
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