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AP Economics

This module explores product differentiation, a strategy used by firms to convince consumers their products are distinct from competitors. By highlighting differences in style, location, and quality, companies can justify higher prices and enhance perceived value. For instance, while variations like deep-dish versus regular pizza may seem trivial, consumers often view them as imperfect substitutes. Advertising plays a crucial role in effective differentiation but can also lead to inefficiencies if misleading. A balanced understanding of these concepts is vital for success in economics.

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AP Economics

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  1. AP Economics Mr. Bernstein Module 68: Product Differentiation and Advertising December 12, 2013

  2. AP EconomicsMr. Bernstein Product Differentiation • Attempts by firm to convince consumers their product is different from competing products • By making them different: • 4-wheel drive vs. 2-wheel drive • Or just by convincing consumers they are different! • Either way, firms can charge a higher price if they can differentiate • Bleach is bleach

  3. AP EconomicsMr. Bernstein Types of Differentiation • Differentiation by Style • Deep-dish, regular or cheesy crust pizza • Consumers regard them as imperfect substitutes

  4. AP EconomicsMr. Bernstein Types of Differentiation • Differentiation by Location • Common in service industries such as groceries, gas • Differentiation by Quality • BMW vs. Hyundai; consumers often pay a higher price even if difference is only perceived

  5. AP EconomicsMr. Bernstein Is Product Differentiation Efficient? • Advertising can provide useful information and aid efficiency • It can also waste resources and/or be misleading, reducing efficiency

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