In a competitive market, by using a differentiation strategy, a firm aims to:

• A. eliminate all forms of advertising to lower expenses
• B. merge with other firms to increase market share
• C. make its product distinct from competitors to gain market power
• D. reduce production costs to undercut competitors' prices

Answer: (C)

Verified step by step guidance

1. Understand the concept of product differentiation: it involves making a product distinct from competitors' products in ways that are valued by consumers, such as quality, features, or branding.
2. Recognize that in a competitive market, firms typically have little market power because products are homogeneous; differentiation allows a firm to gain some market power by making its product unique.
3. Analyze the options given: eliminating advertising reduces expenses but does not create distinctiveness; merging increases market share but is not a differentiation strategy; reducing production costs affects pricing but not product uniqueness.
4. Identify that the key goal of a differentiation strategy is to make the product distinct, which can justify a higher price or customer loyalty, thus increasing market power.
5. Conclude that the correct interpretation of a differentiation strategy in a competitive market is to make the product distinct from competitors to gain market power.