produktdifferentiation

Produktdifferentiation, or product differentiation, is the approach by which firms seek to distinguish their offerings from those of competitors. The goal is to create perceived differences in attributes, quality, or value that make a product stand out to specific groups of consumers, reducing direct price competition and allowing some market power in pricing and positioning.

Differentiation can take several forms. Horizontal differentiation involves differences in features that are preferred differently by consumers but not inherently better or worse, such as flavor, style, or color. Vertical differentiation refers to objectively higher or lower quality or performance, enabling a universal ranking. Differentiation can also be geographic, functional, or related to branding, packaging, technology, customer service, or distribution.

Firms pursue differentiation through multiple mechanisms, including branding and advertising, product design and features, quality improvements, customization, after-sales service, and exclusive access or distribution. Strategic choices about differentiation interact with the competitive environment, influencing demand curves, price elasticity, and the scope for markups in monopolistic competition or oligopoly.

Outcomes of differentiation include a wider variety of products, increased market segmentation, and potential welfare effects. While it can enhance consumer utility by offering better matches to preferences, it may also lead to higher costs for firms and, in some cases, reduced competition if differentiation reduces substitute availability. Empirical work often focuses on market structure, pricing, brand competition, and the magnitude of consumer benefits and costs.