Presentation on theme: "KRUGMAN'S MICROECONOMICS for AP* Product Differentiation and Advertising Margaret Ray and David Anderson Micro: Econ: 32 68 Module."— Presentation transcript:
KRUGMAN'S MICROECONOMICS for AP* Product Differentiation and Advertising Margaret Ray and David Anderson Micro: Econ: Module
What you will learn in this Module : 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? Gets mixed reviews from economists: Product differentiation can increase product variety which can benefit consumers. Product differentiation can be a waste of resources if there is no real benefit from the differentiation.
Is Advertising Efficient? Gets mixed reviews from economists. Advertising can: Provide useful information which can benefit consumers. Signal the quality of a product. Mislead consumers which can be an inefficient use of resources.