Introducing consumer heterogeneity in dynamic games with multi-product firms and differentiated product demand

•We study dynamic games with multi-product firms and differentiated product demand.•We propose conditions allowing for consumer heterogeneity.•These conditions lead to state space reduction to a single state variable for each firm.

This paper extends a discrete-choice model of differentiated product demand to consider consumer heterogeneity in dynamic games. Our approach applies to games involving both multi-product firms and static price competition.