ECON 2010 Lecture Notes - Lecture 32: Monopolistic Competition, Product Differentiation, Perfect Competition
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ECON 2010 Lecture Notes - Lecture 31: Cable Television, Imperfect Competition, Perfect Competition
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ECON 2010 Lecture Notes - Lecture 32: Monopolistic Competition, Product Differentiation, Perfect Competition
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Document Summary
We would expect companies to advertise most in monopolistic competition (differentiation of product), less in monopolies because they have control over the market, and even less for perfectly competitive markets. Pros: differentiation of the product, awareness of the good. Cons: spending resources & energy to spread awareness of the good (dwl) Incentive to advertise: when firms sell differentiated products and charge prices above marginal cost, advertise to attract more buyers, advertising spending, highly differentiated goods: 10-20% of revenue, homogenous products: no advertising. The critique of advertising: firms advertise to manipulate people"s tastes, psychological rather than informational, creates a desire that otherwise might not exist (to twist what information you already know, advertising impedes competition. Increase perception of product differentiation: foster brand loyalty; higher markups, makes buyers less concerned with price differences among similar goods. The defense of advertising: the defense of advertising.