The market for superpremium ice creams is dominated by Ben&Jerry's and Haagen-Dazs, which

compete with non-overlapping flavors and a "chunky" vs. "smooth" concept, depending on the

presence of mix-ins (mix-ins are extra ingredients like chocolate, caramel, candy, and baked goods

that have been added to the ice cream). Using a unit segment to represent smoothness of the ice

cream, Haagen-Dazs (A) produces perfectly smooth flavors (i.e. is located at 0), while Ben&Jerry's

(B) produces perfectly chunky flavors (i.e. is located at 1).

Ice creamconsumers differ in their preference for smoothness and are uniformly distributed along

the segment. Each consumer has a disutility (in addition to the price) from departing from their

favorite smoothness, equal to a unit transport cost of t = 2.

Both firms have the same marginal cost c = 10 and no fixed costs.

Q: In late 1992, Haagen-Dazs introduced Extraas, a line of chunky flavors. Few months later,

Ben&Jerry's introduced smooth flavors, a strategy described by Ben Cohen, the cofounder and

former CEO of Ben&Jerry's, as "When the smooth gets chunky, the chunky gets smooth". How

would you represent this using the model? What do you think that the rationale was? What do

you expect to happen to demand, prices and profits for the two firms? (no computations needed)