Which of the following is true in markets with horizontally differentiated products?
A)Bertrand competitors will generally earn zero profits in equilibrium.
B)Firms always act as monopolists when products are horizontally differentiated.
C)IEPR does not apply to markets with horizontal product differentiation.
D)Bertrand competitors will generally earn positive profits in equilibrium.

Question

Quizplus · Accepted Answer

In markets with horizontally differentiated products, firms differentiate their products based on non-price factors such as quality or design. Therefore, they can charge higher prices than their competitors even if the products are similar. In a Bertrand competition, firms compete by setting prices, and since their products are horizontally differentiated, they can differentiate their prices, leading to positive profits for each firm in equilibrium. Therefore, choice D is the best answer. In markets with horizontally differentiated products, Bertrand competitors will generally earn positive profits in equilibrium. This is because firms can differentiate their products and capture a segment of the market, allowing them to charge a higher price than their competitors. This creates a situation where neither firm can undercut the other without reducing their profits, resulting in positive profits for both firms. IEPR (Intensive Entry and Product Replication) still applies in these markets, as potential entrants can still create products that differentiate themselves from existing ones. Firms may act as monopolists to a certain degree, but not necessarily always.

Which of the Following Is True in Markets with Horizontally