The text’s discussion of the airline industry, the soft drink industry

The text’s discussion of the airline industry, the soft drink industry, and the doughnut industry reveals a common theme when it comes to the types of competitive practices firms in each industry engage in.

What is it and what advantage does it offer firms?

ANSWER

Firms in each of the industries listed above tend to compete on the basis of product differentiation rather than price. For example, in the airline industry, a key source of competition in recent years has been the types of seating offered to intercontinental travelers. In the soft drink industry Coke and Pepsi competed for market share in the market for bottled water by offering different types of packaging and water with different nutritional characteristics. The major players in the doughnut industry compete on the basis of service and range of choices offered to consumers. Note that by competing on the basis of product characteristics rather than price, firms’ revenues are more likely to remain stable. In addition, it is easier to predict how a firm’s competitors will behave, i.e., the types of competitive strategies they might adopt.