Final answer:
Large advertising costs for new firms can discourage competition, act as a barrier to entry, and help established companies maintain their market dominance.
Step-by-step explanation:
Large advertising costs required for new firms entering an industry can have several effects. Firstly, these costs can act as a deterrent to potential competitors. For example, if a new company wants to introduce a new cola drink and needs to spend more on advertising than established brands like Coca-Cola and Pepsi, it may discourage them from entering the market. This can result in fewer new firms entering the industry, leading to less competition.
Secondly, large advertising costs can establish a barrier to entry for new firms. If advertising is a significant expense, it can make it difficult for new firms with limited financial resources to compete with established companies. This can limit the number of new entrants to the industry and maintain a higher market share for the existing firms.
Lastly, large advertising budgets can help established firms maintain their market dominance. These budgets can be used to reinforce brand loyalty and awareness, making it harder for new entrants to establish their own products and gain market share.