User talk:Tambisagar/sandbox/product differentiation

Week 2: Article Evaluation
My research question is "How the blockchain technology with its possible applications changes the current ecosystem around us?

The bitcoin wikipedia page has a lot of valuable information but I doubt the credibility of some of that knowledge because a lot of information came from news articles like "The Economist", CoinDesk, "The Financial Times, etc that are sometimes biased towards a particular thing, which is against the Wikipedia's objective of unbiasedness and scholarly sources. Although with so much information on the page, I decided to focus on the legal status, tax, and regulation subject as a lot more information was yet to be written down and was underdeveloped and drawn from "pastemagazine.com".

Overall, a lot of up-to-date information needs to be added on the bitcoin page about the use and feasibility of the bitcoin itself in the regulated ecosystem from relevant sources. With time, as I research more about my subject within the deadlines, I will keep adding new information on the page and other related pages as well.

Week 3: Citations
From a trusted scholarly source written in February 2016 by Kaye Scholer, I took valuable information about the regulatory efforts the U.S. Federal and State governments are doing to keep the system safe and within the jurisdiction. This page was semi-protected, which is a good thing, hence, a sent a request to edit and successfully did. However, within 2 days it was removed by some other user.

Week 6: Choosing the Right Topic
After a lot of browing to find an ideal topic that has a lot of scope for improvement, I decided on the subject of "Product differentiation". The page only has one introduction and a rationale for information. The immediate things I will add is the introduction of horizontal differentiation, vertical differentiation, and substitute goods and product differentiation to add more to the page.

History
Chamberlin’s (1933) seminal work on monopolistic competition mentioned the theory of differentiation that says that for the available products within the same industry, customers may have different preferences. However, a generic strategy of differentiation that was popularized by Porter (1980) that it is any product (tangible or intangible) perceived as “being unique” by At least one set of customers. Hence, it depends on their perception the extent of product differentiation. Even until 1999, the consequences of these concepts were not well understood. Infact, Miller (1986) proposed marketing and innovation as two differentiation strategies, which was supported by some scholars like Lee and Miller (1999). Mintzberf (1988) proposed more specific but broad categories: quality, design, support, image, price, and undifferentiated products, which got support from Kotha and Vadlamani (1995). However, IO literature (Ethiraj & Zhu, 2008; Makadok, 2010, 2011) did deeper analysis into the theory and explored a clear distinction between the wide use of vertical and horizontal differentiation.

Vertical Product Differentiation
If both A and B products are charged the same price to the consumer, then the market share for each one will be positive, according to the Hotelling-type model. The major theory in this all consumers prefer the 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 with different consumer, so it is objective. A green product might be having a lower or zero negative effect on the environment, however, it may turn out to be inferior than other products in other aspects. Hence, it also depends on the the way it is advertised and the social pressure a potential consumer is living in. Even one vertical differentiation can be a decisive factor in purchasing.

Horizontal Product Differentiation
When products can't be ordered in an objective way and are different in one or all of its features, then there is horizontal differentiation. For example, different color versions of the same iPhone or MacBook. A lemon ice-cream is not superior than a chocolate ice-cream, is completely based on the user’s preference. A restaurant may price all of its desserts are the same price and lets the consumer to freely choose its preferences since all the alternatives cost the same.

Substitute Goods and Product Differentiation
According to a research conducted by combining mathematics and economics, decisions of pricing depends on the substitutability between the products depends to the degree of how much differentiated the firms’ products are. No firm can charge a higher price if the products are good substitutes and vice-versa. The lower non-cooperative equilibrium price the lower the differentiation. For this reason, firms might jointly raise prices above the equilibrium or competitive level by coordination between themselves. They have a verbal or written collusion agreement between them. Firms operating in a market of low product differentiation might not coordinate with others, which increases the incentive to cheat the collusion agreement. On the contrast, even by slightly lowering the prices, a firm can capture large fraction of the market and obtain short term profits with highly substitutable products.

Interaction between Horizontal and Vertical Differentiation: An Application to Banking
During the 1990's, steps taken by government on deregulation and European integration persuaded banks to compete for deposits on many factors like deposit rates, accessibility and the quality of financial services. In this example using the Hotelling model

One feature is of variety (location) and one feature of quality (remote access). Remote access using bank services via postal and telephonic services like arranging payment facilities and obtaining account information). In this model, banks cannot become vertically differentiated without negatively affecting horizontal differentiation between them.

Horizontal differentiation occurs with the location of bank's branch. Vertical differentiation, in this example, occurs whenever one bank offers remote access and the other does not. With remote access, it can spur a negative interaction between transportation rate and taste for quality: customers who have higher taste for remote access face a lower transportation rate.

A depositor with a high (low) taste for remote access has low (high) linear transportation costs. Different equilibria emerge as the result of two effects. On the one hand, introducing remote access steals depositors from your competitor because the product specification becomes more appealing (direct effect). On the other hand, banks become closer substitutes (indirect effect). First, banks become closer substitutes as the impact of linear transportation costs decreases. Second, deposit rate competition is affected by the size of the quality difference. These two effects, "stealing" depositors versus "substitutability" between banks, determines the equilibrium. For low and high values of the ratio quality difference to transportation rate, only one bank offers remote access (specialization). Intermediate (very low) values of the ratio quality difference to transportation costs yield universal (no) remote access.

This competition is a two factor game: one is of offering of remote access and the other is of deposit rates. Hypothetically, there will be two consequential scenarios if only one bank offers remote access. First, the bank gains a positive market share for all types of remote access, giving rise to horizontal dominance. This occurs when the transportation cost prevail over the quality of service, deposit rate and time. Second, vertical dominance comes into picture when the bank that is not offering remote access gets the entire market for depositors who have lowest preference for remote access. That is when the quality service, deposit rate and time prevails over the cost of transportation.