Lecture18_ProductDiff_Econ121_Fall2010

Lecture18_ProductDiff_Econ121_Fall2010 - Lecture 18 Product...

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Click to edit Master subtitle style  11/5/10 Lecture 18 Product Differentiation Econ 121: Industrial Organization UC Berkeley Fall 2010 Prof. Cristian Santesteban
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 11/5/10 Overview Product Differentiation Revisited Address Based Models Hotelling’s Linear City
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 11/5/10 Ice Cream at the Beach A mile long beach Beautiful white sand Tropical weather Crystal clear water Beautiful people You are tanning at this beach and can’t believe that life can be this good
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 11/5/10 Ice Cream at the Beach Oh … and there are also two ice cream vendors at either end Both sell the same ice cream If both sell at the same price, which vendor would you choose?
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 11/5/10 Ice Cream at the Beach Well, naturally, you prefer the seller who is located closer to you. Different consumers value the vendors differently. Specifically, each consumer values the sellers according to his or her location on the beach. So we can generalize …
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 11/5/10 Generalization 1 Any situation where sellers and buyers are physically located in different places and there’s a cost to traveling to where the sellers are. Examples: gas stations, cafes, restaurants, etc.
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 11/5/10 Generalization 2 Situations where sellers offer products that differ according to some characteristic and buyers differ among themselves in their valuation of that characteristic. Examples: laptops, smart phones, etc, etc.
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 11/5/10 From the Beach to Corn Flakes What a comedown … Assume only two brands that differ according to sweetness. Brand 1 – no sugar added Brand 2 – tons of sugar
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 11/5/10 From the Beach to Corn Flakes This is analogous to the two ice cream vendors at the end of our idyllic beach. (Can we return to that example?)
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 11/5/10 Corn Flakes (Continued) One brand is at one end (no sugar) The other at the other end (lots of sugar) A consumer’s “location” indicates his or her preference for sweetness (in corn flakes at least)
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 11/5/10 Corn Flakes (Continued)
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Lecture18_ProductDiff_Econ121_Fall2010 - Lecture 18 Product...

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