116k views
2 votes
The large expenditures on advertising by firms such as Procter & Gamble and Colgate-Palmolive is an example of what kind of barrier to entry?

a. Access to distribution channels.
b. Capital requirements.
c. Economies of scale.
d. Product differentiation.

1 Answer

2 votes

Final answer:

The large advertising expenditures of companies like Procter & Gamble and Colgate-Palmolive create a barrier to entry known as product differentiation, which requires new competitors to invest heavily to establish a comparable brand presence, further leading towards oligopoly conditions.

Step-by-step explanation:

The large expenditures on advertising by firms such as Procter & Gamble and Colgate-Palmolive is an example of the barrier to entry known as product differentiation. This type of barrier occurs when companies establish a strong brand identity through significant investment in marketing and advertising, which in turn makes it difficult for new entrants to compete without similarly large investments to create a comparable brand presence.

Firms may need to achieve a certain size to afford the requisite advertising and marketing to create a recognized brand name. Competing against well-established brands such as Coca-Cola and Pepsi illustrates the challenge of creating a brand and marketing effort that can compete with such giants. This further consolidates the market, leading towards oligopoly conditions where a few firms dominate.

Therefore, when firms like Procter & Gamble and Colgate-Palmolive invest heavily in advertising, they are effectively strengthening the brand differentiation that acts as a barrier to entry for potential competitors in the market.

User Elranu
by
8.6k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.