Compare
| Perfect Competition | Monopolistic Competition | Monopoly | |
|---|---|---|---|
| Products | Identical | Similar but differentiated | Unique, no substitutes |
| Pricing power | None | Some (brand premium) | High |
| Barriers to entry | None | Low-moderate (brand building) | Very high |
| Long-run profits | Zero | Modest | Above-average |
Key point
Brand value is the key differentiator. Nike sells sneakers (commodity) but commands a premium because of brand perception. The brand itself is the moat.
Try it
Compare two companies in the same industry. The one with higher margins likely has stronger brand differentiation.
Key insight
Check-in
Company A sells a commodity product but has invested heavily in brand (Coca-Cola vs. generic cola). Company B sells the same commodity product with no brand premium. What should A's gross margin look like relative to B?
Check your understanding
Sit with the ideas.
Two athletic shoe companies: Brand X is iconic with celebrity endorsements and trades at 30x earnings. Brand Y makes similar quality shoes but with no brand recognition and trades at 12x earnings. Why the valuation gap?
Why: