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Understanding Product Differentiation and Advertising in Economics

Learn about the impact of product differentiation on pricing strategies and consumer perceptions. Explore various types of differentiation such as style, location, and quality, and understand the efficiency of advertising in conveying useful information. Discover how firms use differentiation to stand out in the market.

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Understanding Product Differentiation and Advertising in 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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