Oligopoly and AdvertisingThis is a featured page

  • Advertisements cannot be easily duplicated (different from price cuts that can be quickly and completely matched)
  • Oligopolists have enough financial resources to advertise
  • Advertising also applies to monopolistic competitors

Positive Effects of Ads
  • For consumers, provides convenience and low-cost means to obtain info on product , saves time and energy
  • Diminishes monopoly power by providing info on competing goods
  • Efficiency-enhancing activity
  • Can increase demand for a certain product by altering tastes & preferences of consumers or changing their expectations.
  • Consumers see advertisements on internet, billboards, newspaper, TV, etc.
Negative Effects of Ads
  • Manipulate or persuade consumers by altering preferences
  • Sometimes convey little or no info on the product
  • Misleading and extravagant claims that confuse and influence consumers
  • May create a barrier to entry with costs of advertising
    • This encourages a more monopolistic market structure by establishing substantial brand name loyalty, which then increase their sales, expand their market shares, and lend greater profits (thus, inefficient)
  • Advertising of two firms at the same time can cancel each other out
    • Leads to economic inefficiency (better off without ads), since the demand for each will stay the same, with only an increased average total cost as a result.



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MondGu 		Latest page update: made by MondGu , Nov 20 2007, 5:03 AM EST (about this update About This Update MondGu Edited by MondGu

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