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4. The pizza market in DFW is horizontally differentiated. Stores specialize in a single type of pizza and an equal number specialize in each type.
4. The pizza market in DFW is horizontally differentiated. Stores specialize in a single type of pizza and an equal number specialize in each type. With some consumers preferring deep dish (Type A) and an equal number preferring thin crust (Type B). The table below describes the dollar amount of value they get from each type Deep Dish Thin Crust Consumer Type A $30 $20 Consumer Type B $20 $30 a. Initially, consumers do not know which type is offered by which store. But they believe the price is $15. If they choose a store at random, what is their expected surplus? b. If their cost of leaving and visiting another store is $10, would type A consumers still buy thin crust pizza if they had randomly chosen a thin crust pizza store or would they randomly search again? c. Suppose that each store can blanket advertise their pizza type at an additional cost of $2 per potential consumer, whether the potential customer purchases or not. Consumers expect these costs will be passed on in higher prices. Now would type A consumers end up buying thin crust pizza? d. Now suppose that stores can target market by sending ads to only their consumer segment. These cost $3 per consumer but they only pay for messages sent to their segment of the population. Would they like to engage in target marketing? c. Are consumers better off with no marketing, blanket advertising, or target marketing
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