Brand loyalty is a crucial issue for monopolistic competitors. It’s the key reason we say that economic profit “tends towards” zero and not automatically becomes zero in the long run (like perfect competition).
Sure there are substitutes for Hostess “Cup Cakes,” but let’s be honest, Little Debbie “Cupcakes” are just terrible. I like Hostess so much more that I’d be willing to pay $3 more per box for my preferred brand. That’s brand loyalty.
What THREE brands are you most loyal to, and why? What are the best-known substitutes for the products/brands you love? How much of a premium are you willing to pay to keep buying your brand-name product? (There must be some threshold where you would switch to a different similar product – don’t just say you’re willing to pay more. No credit can be given if there isn’t a specific price differential included in your answer. This assignment aims to help identify the brand loyalty premium and why profits can still exist for firms with direct competitors.)
Little Debbie CupcakesHostess Cupcakes