Question

Why is it important to study product differentiation?

Accepted Answer

Only topic in the course than is indirectly related to competition policy Very difficult to think of any product/markets that fits Bertrand’s assumptions… Products are identical (so a small change in price, could lead to everyone buying from the cheaper seller ● How does product differentiation affect price competition? ● How does price competition affect product differentiation? Why we are using the hotelling framwork Important for policy: (covered in next two weeks) i) Predicting Cartels (OFT, 2005) “Cartels are far more likely if the product is fairly homogeneous betweencompanies in the market. Considerable product differentiation has the opposite effect.” ii) Merger assessment guidelines: (CC & OFT, 2010) “Where products are differentiated, for example by branding or quality, unilateral effects are more likely where the merging firms’ products compete closely.”

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L5 - Product Differentiation Flashcards

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