Question

The Influence of Advertising

• Time for an honest moment here, stop and think about how much advertising influences your consumption decisions. When is the last time you can remember choosing one product over another because of advertising?

With this question being our starting point, it would be great to see if people can also address the following issues:

• What role does advertising play in influencing consumption in monopolistic competition?
• Does the impact of advertising allow for some price leverage by firms in this market structure? Why or why not?
• Is the United States truly an economy that promotes competition?
• Think about the markets where major oligopolies exist, for instance soft drinks/fast foods and automobile manufacturing, is there really a free market place or do oligopolies/major corporations dominate our economy?

Answer 1

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Question:

Answer:

What role does advertising play in influencing consumption in monopolistic competition?

Advertising:

Advertising is the way by which a company provide information about its products and services through TV, news paper, social media, magazines etc. This is popular way of information about own products and services in the market. Companies are spending billion of dollars globally on advertisement.

Monopolistic competition:

Monopolistic competition is characterizes the market in which number of firms producing the similar product and services but that is not perfect substitute. Product and services are slightly different in respect of features, qualities, brand image etc. In a monopolistic competition market entry is not tuff and have perfect information within the market.

Advertising and monopolistic competition:

The objectives of advertisement are to increase demand or market penetration and reduce demand elasticity. But here we have seen the features of a monopolistic competition market so, advertisement will be success here, if a firm get success in convincing to the customers about the product differentiation and reduce elasticity of demand. But here, competition is very strong and firms are aggressively advertise in the market and spend lot of money. So, Spending more on advertisement in monopolistic competition market is not a good idea. Research and expert also advise the same.

Does the impact of advertising allow for some price leverage by firms in this market structure? Why or why not?

We know there is a huge competition in the  monopolistic competition market and also, know that advertising is not free. In this competitive and commercialized world advertising is very costly and its directly affect the cost of production and profits of a firm. In the most of the cases, demand might increase and become less elastic, but average and marginal costs are also likely to increase.

But if a firm want to take the advantages of advertising through price increasing then demand may be reduce of substitute effect. Other side advertisement increase the cost that will increased the marginal cost so firm will pricing its product after adjusting its increased cost and profit margins that will increase overall price of products and services more and negatively affect the demand and profit margin.

Is the United States truly an economy that promotes competition?

Yes, US is an economy that promotes competition and the most competitive economy in the world. According to the World Economic Forum in its 2019 Global Competitiveness Report, U.S. to become the most competitive nation in the world. The WEF measured the strength of 103 key indicators, such as inflation, digital skills and trade tariffs, across 141 countries. US is a great innovative country and the motherland land of top most MNCs like, Amazon, Apple, Alphabet, Facebook, Ford, Intel, Dell, Coca-cola etc. The United States is ranked 6 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings.US has well designed business law and policies to maintain a sound and transparent business culture and business environment. US is a free economy and have open market. US believe in neo-liberalism philosophy and sponsor of LPG policy globally. US is a most important member of global organization like WTO, WB, IMF, G-7 etc and promote a transparent global trade and business policy.

Think about the markets where major oligopolies exist, for instance soft drinks/fast foods and automobile manufacturing, is there really a free market place or do oligopolies/major corporations dominate our economy?

Oligopolies:

Oligopolies is characterizes the market in which small group of large sellers drive the market in which  none of which can keep the others from having significant influence.

We all known US based fast foods/soft drinks and automobile companies those have global presence. These companies are - Subway, Starbucks, McDonald's, Dunkin' Donuts,Pizza Hut, PepsiCo,Coca-Cola, General Motors, Ford Motor etc. This are the very big companies and their market capitalization is more than the a small companies and have more cash than US government. We all know that US a democratic-capitalist nation and most famous culture is corporate culture. In US pressure groups are very active and corporate lobbies are very strong. So, there is no doubt that these companies affect the political,social and economical activities. These company also affect the government decision making. But US is the strongest democracy and follow the neo-liberalism philosophy and give the priority of Social maximization, law and order and a transparent government.

Thank You