Differentiation by Style or Type

The sellers in Leo’s food court offer different types of fast food: hamburgers, pizza, Chinese food, Mexican food, and so on. Each consumer arrives at the food court with some preference for one or another of these offerings. This preference may depend on the consumer’s mood, her diet, or what she has already eaten that day. These preferences will not make consumers indifferent to price: if Wonderful Wok were to charge $15 for an egg roll, everybody would go to Bodacious Burgers or Pizza Paradise instead. But some people will choose a more expensive meal if that type of food is closer to their preference. So the products of the different vendors are substitutes, but they aren’t perfect substitutes—they are imperfect substitutes.

Vendors in a food court aren’t the only sellers that differentiate their offerings by type. Clothing stores concentrate on women’s or men’s clothes, on business or casual clothes, on trendy or classic styles, and so on. Auto manufacturers offer sedans, minivans, sport-utility vehicles, and sports cars, each type aimed at drivers with different needs and tastes.

Books offer yet another example of differentiation by type and style. Mysteries are differentiated from romances; among mysteries, we can differentiate among hard-boiled detective stories, whodunits, and police procedurals. And no two writers of hard-boiled detective stories are exactly alike: Raymond Chandler and Sue Grafton each have their devoted fans.

In fact, product differentiation is characteristic of most consumer goods. As long as people differ in their tastes, producers find it possible and profitable to produce a range of varieties.