Differentiation

Question 1

Horizontally differentiated product

Answer 1

Products satisfying similar needs, some consumers prefer one type while other consumer prefer the other type

Red and blue versions of the same model

Question 2

Vertically differentiated products

Answer 2

Products satisfying similar needs, consumers all prefer one type to the other (i.e. difference in product quality)

First class and economy seats in the airport

Question 3

Whats happens if produces prices differ: Horizontally differentiated products

Answer 3

If one product is more expensive than the other, some people buy one and some people buy the other.

Question 4

When happens if prices different? ;vertically differentiated products:

Answer 4

if lower quality product is more expensive, everyone buys high quality product
Uf high quality product is more expensive, some people may still buy low quality product.

Question 5

Direct Effect:

Answer 5

For a given prices, firms 0’s demand ( and profit increases if it moves closer to the rival

Less differentiation

Question 6

Strategic effect

Answer 6

Given locations, price competition becomes tougher when the distance between firms is lower

More differentiation

Question 7

High transportation costs means ??

Answer 7

High transportations implies not necessary to go too far from competitor to reduce substitutability considerably.
Hence strategic effect = less important

So high transportation costs mean less differentiated products

Question 8

Distribution of consumers along the streeet

Answer 8

Many consumers in the middle of the street and fewer at the ends =. locating in the middle is more important
so,more consumers in the middle =. less product differentiation