s a consequence, many firms entered with ice creams with intermediate levels of smoothness between Ben&Jerry’s and Haagen-Dazs. How could you represent
a.
Knowing that price competition is very fierce in this market, is firms’ choices of maximum
differentiation optimal?
b.
Imagine that entry in this market became easy and, as a consequence, many firms entered
with ice creams with intermediate levels of smoothness between Ben&Jerry’s and Haagen-Dazs.
How could you represent this situation and how will it affect prices and profits as more firms
entered? How would you expect the level of advertising to change if
entry took place in this market.
b. Both firms advertise heavily to consumers. What do you think that is the effect of advertising
on competition in this market? Based on what you know about this market and the type of product, which type of advertising
would you expect the firms to mostly engage in?
![The market for superpremium ice creams is dominated by Ben&Jerry's and Haagen-Dazs, which
compete with non-overlapping flavors and a "chunky" vs. "smooth" concept, depending on the
presence of mix-ins (mix-ins are extra ingredients like chocolate, caramel, candy, and baked goods
that have been added to the ice cream). Using a unit segment to represent smoothness of the ice
cream, Haagen-Dazs (A) produces perfectly smooth flavors (i.e. is located at 0), while Ben&Jerry's
(B) produces perfectly chunky flavors (i.e. is located at 1).
Ice cream consumers differ in their preference for smoothness and are uniformly distributed along
the segment. Each consumer has a disutility (in addition to the price) from departing from their
favorite smoothness, equal to a unit transport cost of t = 2.
Both firms have the same marginal cost c = 10 and no fixed costs.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3060ba61-fc2f-4eda-b743-b0ca8bf1d1ed%2F95197ac4-2000-43a1-8756-a7ca3d0cda90%2Fdncpbe_processed.jpeg&w=3840&q=75)
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