ABSTRACT
When you are finished with this chapter you should understand:
How goods can be differentiated on the basis of physical location, quality, size, appearance, or many other characteristics, and how the notion of product space can be defined to accommodate these product characteristics
That product differentiation can resolve the Bertrand paradox because consumers will not be indifferent to the same good produced by different firms at the same price
That with differentiated products, firms can compete over prices in the short-run, with product location taken as fixed, but in the longer run, firms can vary both their market price and the location of their product in product space
How the effect of a change in product location can be broken down into a market-share effect and a strategic effect
That competition between firms over product location can result in minimum product differentiation or maximum product differentiation
