It's obvious that LEGO has better quality control, but what about the plastic they use? Megabloks look cheap and the parts seem to vary in color in a side by side comparison next to LEGO brand elements. Why?
The thing with ABS is a bit more than that simple. The general rule is that if you want to have different/better plastic you need to play with small amounts of co-polymers. 99-point-something of your plastic is the main co-polymer, but the 0-point-nothing decides about fine-tuning of properties. A bit more than 10 years ago a friend of mine was working for Bayer (the one from aspirin). He gave me at the time two examples of their R&D. One was extreme shortening of hardening time for polycarbonate of CDs. In some years of development it was shortened from ~1min to some seconds. As the 2nd example - he told me a bit about the LEGO plastic. At the time they had a project for LEGO and its aim was to make plastic for molds better. They have machine that was interlocking bricks for several thousands times measuring all the time the force needed to connect and disconnect two parts. They made them self new parts (some of them were never on the market) and were trying to find additives that make LEGO bricks better (long time durability).
So to make whole this story short: I believe that in 99.9% both firms use the same material (i.e. ABS) however I also believe that LEGO plastic is qualitatively better. I will not argue that it's so much better that the price of any LEGO-set is reasonable. IMHO they are horribly over-priced but at the same time I'm still buying them for my kids. I hope they will last for my grandkids. :-)
Both Lego and MEGA Brands use injection-molded ABS (acrylonitrile butadiene styrene) plastic to manufacture their elements. The most obvious difference between the two manufacturing processes is that Lego elements tend to have thicker walls than Mega Blok elements. That accounts for the cheaper "feel" and less clutch power. Obviously MEGA does this to save money, although interestingly, there have recently been complaints that Lego has started to reduce their wall thickness for the same reason. (See, for example, this article on a recent Monster Fighters set: http://www.brickset.com/news/article/?ID=3504)
Another difference between the two brands is that Lego elements tend to be shinier than their Mega Blok counterparts.
Based on my personal contacts with individuals who work in plastics, this is likely a result of using re-melted ABS instead of "fresh" pellets. If I had to guess, I'd say that Lego probably discards or recycles in another fashion the leftover plastic from their injection molding machines, while MEGA sends that plastic back through the process. Another possibility is that MEGA uses a less expensive plastics supplier with lower quality ABS.
Based on the first comment below, I agree that there is probably something else at play in the shininess of Lego elements relative to their off-brand counterparts. I found an interesting article (http://www.ptonline.com/articles/eliminate-surface-defects-on-molded-parts) that discusses the difficulty of achieving a quality finish on the surface of injection-molded plastic that may also explain some of the apparent differences between the MegaBloks and the Lego elements. Regardless, the wall thickness as discussed above is still the main noticeable difference between the two brands, and it is definitely a result of cost savings on the part of MEGA Brands.
"Both Lego and MEGA Brands use injection-molded ABS (acrylonitrile butadiene styrene) plastic to manufacture their elements." -by oddTodd Jun 15 '13
TL;DR: Mega Bloks are NOT ABS.
Based on oddTodd's statement alone, I went to the local resale shop and bought a few Mega Bloks for a few cents. My intention was to use the Mega Bloks as a source of colored ABS plastic that I could melt into a slurry in acetone.
I used a tapered drill bit to cut the block into shavings, placed the shavings into a glass jar, and covered them in acetone. I have done this process numerous times with known ABS components to create an ABS slurry.
The Mega Blocks didn't feel like ABS. They were soft, turned white when bent or stretched, and are absolutely impervious to acetone. Everything about this experiment reminded me of dealing with polyethylene or polypropylene.