Question

How might advertising make markets less competitive?

How might it make markets more competitive? Give the arguments for and against brand names.

Answer 1

Advertising can both make markets less competitive and more competitive, depending on the context. Brand names can provide familiarity, trust, and identity to consumers, but they can also limit consumer choice and create barriers to entry for new competitors.

Step-by-step explanation:

Advertising can both make markets less competitive and more competitive, depending on the context. On one hand, advertising can make markets less competitive by promoting brand loyalty and creating barriers to entry for new competitors. For example, if a company heavily advertises its brand and creates a strong brand image, consumers may be more likely to purchase that brand out of familiarity and trust, reducing competition. On the other hand, advertising can make markets more competitive by informing consumers about different product options and creating more choices. This can lead to increased competition among firms to differentiate their products and attract customers through quality, pricing, or other factors.

Arguments for brand names include:

1. Brand names provide consumers with a sense of familiarity and trust. Consumers may be more willing to purchase a product from a well-known brand because they associate it with a certain level of quality or reliability.
2. Brand names can serve as a signal of the firm's commitment to maintaining consistent product quality. Consistently delivering a high-quality product under a well-known brand name can help a company build a positive reputation and differentiate itself from competitors.
3. Brand names can create a sense of identity and affiliation for consumers. People may feel a sense of loyalty to a particular brand and be more likely to continue purchasing its products.

Arguments against brand names include:

1. Brand names can limit consumer choice. By promoting a specific brand, advertising may discourage consumers from exploring and trying products from other competitors.
2. Brand names can result in higher prices. When a brand becomes well-established and associated with higher quality, it may be able to charge a premium price, which can limit access to those who cannot afford it.
3. Brand names can create barriers to entry for new competitors. Well-established brands with strong brand loyalty and recognition can make it difficult for new entrants to enter the market and compete.