71) Microsoft thought that the initial Xbox was sufficiently different from PS2

Question

71) Microsoft thought that the initial Xbox was sufficiently different from PS2 that it could charge a significantly higher price for the Xbox than Sony could charge for PS2. Which of the following statements is implied by Microsoft's product positioning?
a. Microsoft recognized that the PS2 was a substitute for the Xbox but believed that the Microsoft name would be sufficient to draw customers away from the PS2 and that customers would be willing to pay a premium for Microsoft's product.
b. Microsoft believed that the PS2 would soon be phased out by Sony's PS3; therefore, it could charge a high price for the Xbox because it had no close substitutes.
c. Microsoft believed that the PS2 was a distant substitute for the Xbox and therefore the demand curve for Xbox would be elastic. Charging a higher price would enable it to increase its profits.
d. Microsoft believed that it had differentiated the Xbox sufficiently to insulate it from competition. Consequently, it would be able to charge a higher price and increase its profits.

Explanation / Answer

The answer is D. Microsoft thought the product although similar was differentiated. This is an example of a monopolistic competition. Hope this helps

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