Module Micro: Econ: 32 68 Product Differentiation and Advertising • KRUGMAN'S • MICROECONOMICS for AP* Margaret Ray and David Anderson
What you will learnin thisModule: • How and why oligopolists and monopolistic competitors differentiate their products. • The economic significance of advertising and brand names.
Product Differentiation • Product differentiation is the attempt by firms to convince buyers that their products are different from those of other firms in the industry.
Differentiation by Style or Type As long as consumers have different tastes, producers will be able to increase profits by differentiating their products to suit those tastes.
Differentiation by Location Many monopolistically competitive firms differentiate their product by location – particularly in service industries
Differentiation by Quality Even if quality differences are mostly perceived, consumers are often willing to pay a higher price for a product they perceive to be of higher quality.
Is Product Differentiation Efficient? • Product differentiation can increase product variety and advertising can provide useful information, both of which can benefit consumers. • Product differentiation can be a waste of resources and advertising can mislead consumers, both of which can be an inefficient use of resources.