Editing Product differentiation (section)

== Vertical product differentiation ==
Vertical product differentiation can be measured objectively by a consumer. For example, when comparing two similar products, the quality and price can clearly be identified and ranked by the customer. If both A and B products have the same price to the consumer, then the [[market share]] for each one will be positive, according to the [[Hotelling's law|Hotelling model]]. The major theory in this is that all consumers prefer the higher quality product if two distinct products are offered at the same price. A product can differ in many vertical attributes such as its [[operating speed]]. What really matters is the relationship between consumers' willingness to pay for improvements in quality and the increase in cost per unit that comes with such improvements. Therefore, the perceived difference in quality is different among different consumers, so it is objective.<ref>{{cite journal|last1=Sutton|first1=John|title=Vertical Product Differentiation: Some Basic Themes|journal=The American Economic Review|date=May 1986|volume= 76, No. 2, Papers and Proceedings of the Ninety-Eighth Annual Meeting of the American Economic Association (May, 1986), pp. 393-398|issue=American Economic Association|pages=393–398|jstor=1818803}}</ref> For example, a green product might have a lower or zero negative effect on the environment; however, it may turn out to be inferior to other products in other aspects. Hence, the product's appeal also depends on the way it is advertised and the social pressure felt by a potential consumer. Even one vertical differentiation can be a decisive factor in purchasing.<ref>{{cite web|last1=Piana|first1=Valentino|title=PRODUCT DIFFERENTIATION|url=http://www.economicswebinstitute.org/glossary/product.htm#vertical|publisher=Economics Web Institute}}</ref>