Advertisement in Monopolistic Competition

Advertising has always been the best way to make the customer know about services and goods. Advertisement conveys information about a product, influences customer’s choice, and increases the demand. In the same way it increases the income of a producer. It is well known that money that is spent on advertising is never wasted. Advertising helps to distribute goods at reasonable prices and draws attention to new services, ideas and raises living standards. During present times advertising is an essential part of business and a key to its survival. But all advertisements have their specific advantages and disadvantages. Advertising is also considered to be information that is provided by a company about its product or operation. It is done with the help of newspapers, magazines, television, radio, and the Internet, thus helping to promote revenues, sales, and profit.

In monopolistic competition, various producers deal with selling similar but somewhat different goods. Due to the fact that the products are different, the main thing that should be understandable to all companies in monopolistic competition is that they have to be brand loyal. Brand loyalty is the result of advertising that is used to attract the consumer attention. Advertising is very often used in terms of monopolistic competition with the aim to accomplish such goals as control over the market and differentiation of products. Market control comes with product differentiation. The aim of advertising is to convince customers that a product is different and better than the product of a competitor. As the result the firm can set higher prices and it causes higher profit. Successful advertising usually leads to certain assumptions of a consumer about definite company products which may enhance the consumer’s loyalty to the particular company. It is likely that a customer will keep returning to buy more products from the company and this will let the company to practice monopoly. 

In monopolistic competition brand advertising is the reason of fixed costs in the short run due to the fact that a company has to set the advertising budget long time before the sales. As it was mentioned above any advertising has its advantages and disadvantages. In monopolistic competition advertising is very informative and helps companies to increase their sales and permits economies of scale. Among the advertising advantages in monopolistic competition it is also worth mentioning great contribution to the growth of economy and increased sales. Advertising supports the media, increases competition and lowers prices. It is an essential tool of a firm to inform people about their product, its benefits and differences from a competitor’s product. Recognition of a brand name allows to build confidence in a particular product or service.

Of course, advertisement of a new product is important. The greatest part of advertising we see is about the existing and well-established goods, but not the new ones. Thus, it is widely considered that in many cases advertising is used to sway consumers away from competitors and distract their attention. It is also believed that advertising is more competitive than informative and the scale economies are illusory. The disadvantage of monopolistic competition advertising is also the rise of the cost curve, as well as the fact that it may be used to influence media bias, served as an entry barrier and be an unproductive activity. It has been argued that advertising in monopolistic competitive industries can represent a quality guarantee and that advertising helps producers to reduce the cost as consumers weigh and thoroughly analyze competing brands before choosing a favorite one. It remains evident that advertising makes customers spend more money on certain products because of the name associated with them. 

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