Monday, October 19, 2009

Product Differentiation & Innovation

In many of my economics course that I teach, we discuss in varying ways the impact that product differentiation or innovation has on firms and ultimately on the market. Here is a great example of this in action. Nintendo has come up with a very innovative video game console in the past few years, and its sales have surpassed its rivals.

Now, we see that sales of Sony's PS3 are gaining on the Nintendo Wii. How, if the Wii is so much different than the PS3 or Xbox360? By the introduction of new complements (video games) for the PS3, that is leading to an increase in PS3 sales. Here again, innovation or product differentiation is driving the gains for Sony.

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