1. AP Economics Mr. Bernstein Module 68: Product Differentiation and Advertising December 9, 2014

2. AP Economics Mr. 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 2

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

4. AP Economics Mr. 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 4

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