Question
Consider a market in which consumers' Quality-Price indifference curves (in a diagram where Quality is on the horizontal axis and Price is on the vertical
Consider a market in which consumers' Quality-Price indifference curves (in a diagram where Quality is on the horizontal axis and Price is on the vertical axis) are very steep. Firms in the industry are segmented into two strategies: some firms produce a "basic" product that provides ordinary performance; other firms produce a more sophisticated version that provides superior performance. The industry currently provides consumer surplus parity (in other words, all producers provide the same difference between willingness to pay and price). Are the prices of the basic and the enhanced product likely to be significantly different or roughly the same? Why? How would the answer change if consumer indifference curves were relatively flat? Why?
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