I n t h I s c h a p t e r y o u w I l L

A T V S e a s o n W h e n
I m a g e I s E v e r y t h i n g
B
Y
S
TUART
E
LLIOTT
A marketing blitz to promote fall tele-
vision programming, estimated at a rec-
ord $400 million to $500 million, has
been inundating America with a barrage
of branding.
Branding is a shorthand term along
Madison Avenue for attempts to create
or burnish an identity or image, just as
Coca-Cola seeks to distinguish itself
from Pepsi-Cola. For the 1996–97
prime-time broadcast television season,
which officially began this week, viewers
have been swamped by the torrent of
teasing practically since the 1995–96
season ended in May.
At the center of those efforts is the
most ambitious push ever by the broad-
cast networks to brand themselves and
many of the blocks of programming they
offer—a marked departure from the
past, when they would promote only
specific shows.
“The perception was that people
watched shows, not networks,” said
Bob Bibb, who with Lewis Goldstein
jointly heads marketing for WB, a fledg-
ling network owned by Time Warner, Inc.,
and based in Burbank, California.
“But that was when there were only
three networks, three choices,” Mr. Bibb
added, “and it was easy to find the
shows you liked.”
WB has been presenting a sassy
singing cartoon character named Michi-
gan J. Frog as its “spokesphibian,” per-
sonifying the entire lineup of the
“Dubba-dubba-WB”—as he insists upon
calling the network.
“It’s not a frog, it’s an attitude,” Mr.
Bibb said, “a consistency from show to
show.”
In television, an intrinsic part of
branding is selecting shows that seem
related and might appeal to a certain au-
dience segment. It means “developing
an overall packaging of the network to
build a relationship with viewers, so they
will come to expect certain things from
us,” said Alan Cohen, executive vice
president for the ABC-TV unit of the
Walt Disney Company in New York.
That, he said, means defining the
network so that “when you’re watching
ABC, you’ll 
know you’re watching
ABC”—and to accomplish it in a way
that appeals to the primary ABC audi-
ence of youngish urbanites and families
with children.
S
OURCE
:
The New York Times,
September 20, 1996,
p. D1.
I N T H E N E W S
TV Networks as
Brand Names
A
N ATTITUDE
, 
NOT JUST A FROG

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C H A P T E R 1 7
M O N O P O L I S T I C C O M P E T I T I O N
3 9 1
Goldman notes that “these arguments are clear enough and sound as if they
might have been written by a bourgeois apologist.”
Q U I C K Q U I Z :
How might advertising make markets less competitive? 
How might it make markets more competitive?
◆
Give the arguments for 
and against brand names.
C O N C L U S I O N
Monopolistic competition is true to its name: It is a hybrid of monopoly and com-
petition. Like a monopoly, each monopolistic competitor faces a downward-
sloping demand curve and, as a result, charges a price above marginal cost. As in
a competitive market, however, there are many firms, and entry and exit drive the
profit of each monopolistic competitor toward zero. Because monopolistically
competitive firms produce differentiated products, each firm advertises in order to
attract customers to its own brand. To some extent, advertising manipulates con-
sumers’ tastes, promotes irrational brand loyalty, and impedes competition. To a
larger extent, advertising provides information, establishes brand names of reli-
able quality, and fosters competition.
The theory of monopolistic competition seems to describe many markets in
the economy. It is somewhat disappointing, therefore, that the theory does not
yield simple and compelling advice for public policy. From the standpoint of the
economic theorist, the allocation of resources in monopolistically competitive mar-
kets is not perfect. Yet, from the standpoint of a practical policymaker, there may
be little that can be done to improve it.
◆
A monopolistically competitive market is characterized
by three attributes: many firms, differentiated products,
and free entry.
◆
The equilibrium in a monopolistically competitive
market differs from that in a perfectly competitive
market in two related ways. First, each firm has excess
capacity. That is, it operates on the downward-sloping
portion of the average-total-cost curve. Second, each
firm charges a price above marginal cost.
◆
Monopolistic competition does not have all the
desirable properties of perfect competition. There is the
standard deadweight loss of monopoly caused by the
markup of price over marginal cost. In addition, the
number of firms (and thus the variety of products) can
be too large or too small. In practice, the ability of
policymakers to correct these inefficiencies is limited.
◆
The product differentiation inherent in monopolistic
competition leads to the use of advertising and brand
names. Critics of advertising and brand names argue
that firms use them to take advantage of consumer
irrationality and to reduce competition. Defenders of
advertising and brand names argue that firms use them
to inform consumers and to compete more vigorously
on price and product quality.
S u m m a r y
monopolistic competition, p. 378
K e y C o n c e p t s

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3 9 2
PA R T F I V E
F I R M B E H AV I O R A N D T H E O R G A N I Z AT I O N O F I N D U S T R Y
1.
Describe the three attributes of monopolistic
competition. How is monopolistic competition like
monopoly? How is it like perfect competition?
2.
Draw a diagram depicting a firm in a monopolistically
competitive market that is making profits. Now show
what happens to this firm as new firms enter the
industry.
3.
Draw a diagram of the long-run equilibrium in a
monopolistically competitive market. How is price
related to average total cost? How is price related to
marginal cost?
4.
Does a monopolistic competitor produce too much or
too little output compared to the most efficient level?
What practical considerations make it difficult for
policymakers to solve this problem?
5.
How might advertising reduce economic well-being?
How might advertising increase economic well-being?
6.
How might advertising with no apparent informational
content in fact convey information to consumers?
7.
Explain two benefits that might arise from the existence
of brand names.
Q u e s t i o n s f o r R e v i e w
1. Classify the following markets as perfectly competitive,
monopolistic, or monopolistically competitive, and
explain your answers.
a.
wooden #2 pencils
b.
bottled water
c.
copper
d.
local telephone service
e.
peanut butter
f.
lipstick
2. What feature of the product being sold distinguishes a
monopolistically competitive firm from a monopolistic
firm?
3. The chapter states that monopolistically competitive
firms could increase the quantity they produce and
lower the average total cost of production. Why don’t
they do so?
4. Sparkle is one firm of many in the market for
toothpaste, which is in long-run equilibrium.
a.
Draw a diagram showing Sparkle’s demand curve,
marginal-revenue curve, average-total-cost curve,
and marginal-cost curve. Label Sparkle’s profit-
maximizing output and price.
b.
What is Sparkle’s profit? Explain.
c.
On your diagram, show the consumer surplus
derived from the purchase of Sparkle toothpaste.
Also show the deadweight loss relative to the
efficient level of output.
d.
If the government forced Sparkle to produce
the efficient level of output, what would happen
to the firm? What would happen to Sparkle’s
customers?
5. Do monopolistically competitive markets typically have
the optimal number of products? Explain.
6. Complete the table below by filling in YES, NO, or
MAYBE for each type of market structure.
P r o b l e m s a n d A p p l i c a t i o n s