Question

Describe one characteristic of a common good that firms alter to differentiate theri product, and describe how it is vertical or horizontal differentiation.

Answer 1

The one characteristic that firm alters to differentiate their product is producing the same product with different design or with more functional features. It will be vertical differentiation if two different product is available to consumers at the same price. It will be horizontal differentiation if the product has different features and hence is ordered by consumers based on their preferences. For example, in case of horizontal differentiation, the different color of the mobile phone may price different.