Product Variety under Monopoly

Product Variety under Monopoly PowerPoint PPT Presentation

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ECO 171. 2. Introduction. Most firms sell more than one productProducts are differentiated in different wayshorizontallygoods of similar quality targeted at consumers of different typeshow is variety determined?is there too much variety. ECO 171. 3. Horizontal product differentiation. Suppose t

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Product Variety under Monopoly

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1. 1 Product Variety under Monopoly

2. ECO 171 2 Introduction Most firms sell more than one product Products are differentiated in different ways horizontally goods of similar quality targeted at consumers of different types how is variety determined? is there too much variety

3. ECO 171 3 Horizontal product differentiation Suppose that consumers differ in their tastes firm has to decide how best to serve different types of consumer offer products with different characteristics but similar qualities This is horizontal product differentiation firm designs products that appeal to different types of consumer products are of (roughly) similar quality Questions: how many products? of what type? how do we model this problem?

4. ECO 171 4 A spatial approach to product variety The spatial model (Hotelling) is useful to consider pricing design variety Has a much richer application as a model of product differentiation “location” can be thought of in space (geography) time (departure times of planes, buses, trains) product characteristics (design and variety) consumers prefer products that are “close” to their preferred types in space, or time or characteristics

5. ECO 171 5 An example of product variety

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