Product Differentiation

Abstract

It has already been pointed out that perfect competition is, and probably always has been, a rare phenomenon. The closest approximation to perfect competition has been in the markets for primary products, the qualities of which are largely determined by nature. Even here, there have always been variations between farmers in the qualities of their products, and some variations also in the qualities of mineral products, depending on their natural qualities and on the processes to which they have been subjected. As soon as mankind rose above the level of hunting and gathering and became ‘producers’, who incorporated their labour and intelligence into their products, there was bound to be some variation in quality between the products of different producers. It has been argued above that each producer has his or her own private technology, and that there may be considerable variations between different producers in this respect, even when they are making approximately the ‘same’ product. Product differentiation is the inevitable result of the intervention of the human factor in production. To a large extent, it is the expression of differences in private technology.