Heterogeneous Products: Definition & Overview

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Lesson Transcript
Instructor: Shawn Grimsley
Heterogeneous products are prevalent in our economy. In this lesson, you'll learn what heterogeneous products are and examine some related concepts. You'll also have a chance to reinforce your knowledge with a short quiz.

Definition of Heterogeneous Products

Heterogeneous products are products with attributes that are significantly different from each other, which makes it difficult to substitute one product for another. An example of a heterogeneous product is a computer. You really can't substitute a PC for a Mac, because each computer platform is too different.

On the other hand, homogeneous products are products that have substantially the same product attributes and one product can serve as a perfect substitute for the other. Commodities are generally a good example of homogeneous products. For example, a 1-kilogram 24-karat gold bar can be perfectly substituted for a different 1-kilogram bar of 24-karat gold.

Pros and Cons of Heterogeneous Products

The existence of heterogeneous products indicates an imperfectly competitive market, because consumers cannot readily substitute a competing product due to differences in the products' attributes. This makes products hard to compare and price. For example, it's not easy to determine whether a mid-sized Honda priced at X is a better or worse value than a mid-sized Toyota priced at Y.

On the other hand, price is really the only significant thing companies can compete with regarding homogeneous products, because the consumer can pick the cheapest product and get the same thing. For example, a bushel of wheat from Farmer Adams is no different than a bushel of wheat from Farmer Brown. If Farmer Brown's bushel of wheat is cheaper, you'll buy from him.

While heterogeneous products may create an imperfect market, they do present some opportunities to consumers and businesses. Businesses are able to market different attributes, such as quality of materials, size, weight, taste, smell, and feel, to differentiate their products from competing products, and induce customers to choose theirs over the competition. Consumers, on the other hand, get a variety of choices to select from that best matches their needs and preferences. In the end, market efficiency isn't everything.

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