Wednesday, October 21, 2009

Product Differentiation & Innovation II

This past summer, both Microsoft and Sony have announced they are going to produce motion sensor technology for their respective game systems. Each is trying to extend the life of their current video game console systems by producing a complement (motion sensor devices) that have been very successful with the Nintendo Wii.

Product Differentiation theory tells us that as these three products become more substitutable, then the prices will start to converge and each firm will have an incentive to come up with another innovation to make their firm's product different enough, in order to capture greater economic profits.

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