A differentiated product market model using the Hotelling approach is proposed. The structure of demand of the differentiated product is defined. The structure of demand and social welfare are investigated by the method of simulation modeling. The sources of growth and loss of public welfare; the market as a public good; "market failures"; external effects of fair advertising and the paradox of Hotelling associated with the growth of profits of the duopoly with the growth of transport costs of the consumer are considered. The criteria of the manufacturer's decisions on differentiation are considered. On the example of production of one and two variants of a product the comparison of public welfare and its components at various target functions of the producer is carried out: maximization of profit and maximization of public welfare.