Decision of enterprises’ product differentiation and pricing with heterogeneous consumers

After making reasonable assumptions of switch costs and product costs ,based on the Hotelling’s model, the Mussa and Rosen’s model, enterprises’ product and pricing strategies in the competitive environment were discussed, and the influences of consumers’ heterogeneities and product costs on enterprises’ strategies were analyzed. Research shows that if two enterprises implement single pricing or discriminatory pricing, they will follow the principle of minimum differentiation, and that if they implement different pricing strategies, the one that adopts discriminatory pricing will obtain higher equilibrium quality, and its profits will be also improved .At the same time, the more sensitive consumers are to quality, or the more quality-sensitive people are, the higher the equilibrium qualities and prices will rise, and the more enterprises’ profits will decrease. The more sensitive consumers are to price, or the more price-sensitive people are, the more equilibrium qualities and prices will decrease. With the increases of cost coefficients, the equilibrium qualities will lower, and when the marginal cost coefficients are greater than a certain value, enterprises will be driven out of the market. Finally, an example was analyzed, and was concluded that enterprises’ optimal strategies are to implement discrimination pricing.