14- mavzu: Raqobat va yakkahokimlik

14.4 Advertising²
Advertising is an important non‑price method of competition that is commonly used where the firm has market power, unlike in perfect competition. By advertising, firms hope to increase the demand for their products and make it less elastic, thus enhancing revenues and profits.
Some have argued that the $130 billion in annual advertising manipulates consumer tastes and wastes billions of dollars annually creating “needs" for trivial products, which further takes resources away from the provision of needed (but unadvertised) public goods. Moreover, advertising is sometimes based on misleading claims, so people find themselves buying products that do not provide the satisfaction or results promised in the ads. Finally, advertising itself requires resources, which raises average costs. On the other hand, if one believes that people are rational and should be permitted freedom of expression, the argument against advertising loses some of its force.
Use What You’ve Learned: Advertising
Even if advertising does add to total cost, however, it conveys information. Through advertising, customers become aware of options that they have in terms of product choice. Advertising helps customers choose products that best meet their needs, and it informs price-conscious customers about the cost of products.
Advertising reduces information costs, so customers know about more products that may be substitutes for the products they currently buy. Consequently, this leads to increasingly competitive markets. Studies in the eyeglass, toy, and drug industries have shown that advertising has increased competition and led to lower prices in these markets.
Chapter 15: Oligopoly and Strategic Behavior
15.1 Oligopoly
Oligopolies exist where relatively few firms control all or most of the production and sale of a product (oligopoly = few sellers). The products may be homogeneous or differentiated, but the barriers to entry are often very high, which makes it very difficult for firms to enter into the industry. Consequently, long-run economic profits may be earned by firms in the industry.
Oligopoly is characterized by mutual interdependence among firms; that is, each firm shapes its policy with an eye to the policies of competing firms. Oligopolists must strategize, much like good chess or bridge players, constantly observing and anticipating the moves of their rivals. Oligopoly is likely to occur when the number of firms in an industry is so small that any change in output or price by one firm appreciably impacts the sales of competing firms, so competitors respond directly to these actions in determining their own policy.
Primarily, oligopoly is a result of the relationship between technological conditions of production and potential sales volume. For many products, a reasonably low cost of production cannot be obtained unless a firm is producing a large fraction of the market output. In other words, substantial economies of scale are present.
Concentration ratios are a way of measuring oligopoly power, but they are not perfect (e.g., they ignore foreign competition).
Exhibit 1: Four-Firm Concentration Ratios, U.S. Manufacturing
Economies of large‑scale production make operation on a small scale during a new firm’s early years extremely unprofitable. A firm cannot build up a large market overnight; in the interim, average total cost is so high that losses are heavy. Recognition of this fact discourages new firms from entering the market.
Exhibit 2: Economies of Scale as a Barrier to Entry
It is difficult to predict how firms will react in situations of mutual interdependence. No firm knows what its demand curve looks like with any degree of certainty, and therefore it has a limited knowledge of its marginal revenue curve. to know anything about its demand curve, a firm must know how other firms will react to its prices and other policies. Thus, in the absence of additional assumptions, equating marginal revenue and marginal cost is relegated to guesswork. Thus it is difficult for an oligopolist to determine its most profitable price and output.