advertising
- Advertising is very important to monopolistic competition.
- When firms sell differentiated products and charge prices above marginal cost, each firm has an incentive to advertise in order to attract more buyers to its particular product.
- The amount of expenditure spent on advertising varies between products.
- The higher differentiated the products are more money will be spent in advertising e.g chocolate bars.
- Lower differentiated products such as wheat spend little or no money on advertising.
The Debate over Advertising
For:
• Provides information to customers. This information allows customers to make better choices about what to buy and thus enhances the ability of markets to allocate resources efficiently.
• Creates competition, because customers are more fully informed about all the firms in the market, customers can more easily take advantage of price differences.
Against:
• Advertising may not include price and quality of the product but may show a subconscious message that creates a desire that otherwise might not exist.
For:
• Provides information to customers. This information allows customers to make better choices about what to buy and thus enhances the ability of markets to allocate resources efficiently.
• Creates competition, because customers are more fully informed about all the firms in the market, customers can more easily take advantage of price differences.
Against:
• Advertising may not include price and quality of the product but may show a subconscious message that creates a desire that otherwise might not exist.