Re: [OPE-L] Monopoly

From: glevy@PRATT.EDU
Date: Thu May 10 2007 - 11:23:52 EDT

> You seem to have a very plane conception of preferences. Maybe your
> wardrobe is composed of different coloureds shirts with different designs
> and maybe you are secretly a little happier when using a lively coloured
> t-shirt in a sunny Sunday instead of a grey one. If you don’t allow
> product differentiation surely your Socialist Citizens will be uniformed.
> Apparently it is a trivial matter but a developed economy has to be able
> to satisfy preferences as subtle as this one.

Hi Alejandro:

Product differentiation is about far more than business firms selling
shirts of different colors.

Historically, the pattern and practice of product differentiation was set
by GM and is sometimes called "Sloanism".  At the time that GM first
implemented this strategy Ford controlled well over 90% of the domestic
market for automobiles and Sloan knew that GM, while a huge corporation,
couldn't compete with Henry Ford in terms of technological change and
price competition.  Product differentiation was developed as an
*alternative competitive strategy*.  One of the things that Sloan astutely
did was (reminiscent of your t-shirt question) to have GM cars produced in
different colors since the Model T was only painted one color (black).
*Key* to the strtegy of product differentiation was *advertising* which
sought primarily not to "educate" consumers but to shape and create
consumer preferences and brand loyalty.  Where there is advertising,
consmuers often pay a premium for no other reason that the *brand* of the
product.  This result can *only* happen if we assume *incomplete*
information on the part of consumers and the ability of firms to
*manipulate* consumer preferences.

> Of
> course, we better settle rules concerning fair advertisement.

The purpose of advertisement is not to provide information to consumers.
Still less is the purpose to be "fair"!  The purpose is simply to help
*sell* a product.

> * there is rational behavior by consumers;
> * consumers have "perfect information" about the prices and qualities of
> all commodities that they might purchase on the market;
> It is not a requisite for real market neither Austrians & Market
> Socialists accounts. It is only needed by the counter-factual suppositions
> of “paretian optimality”.

It is an assumption employed in the marginal utility theory of consumer

In solidarity, Jerry

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