13.4 Oligopoly and Advertising
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17 Terms
Why do oligopolists avoid price competition?
Because rivals copy price cuts instantly, so nobody gains customers and everyone loses profit.
What do oligopolists compete with instead of price?
Product development and advertising.
Why is advertising harder for rivals to copy than price cuts?
Ads and product improvements take time and money to duplicate; price cuts can be matched immediately.
Why can oligopolists afford heavy advertising?
They have large financial resources from past economic profits.
How does advertising help consumers make better decisions?
It provides information about prices, features, and product options.
How does advertising reduce consumer search costs?
It saves time and money by giving information upfront.
How does advertising increase competition?
It helps new firms enter markets and challenge established brands.
How does advertising improve economic efficiency?
It increases competition, spreads new technology, and can lower long‑run average costs through higher output.
How can advertising promote technological progress?
By helping new products gain attention and market share.
How can advertising manipulate consumers?
By using emotional or celebrity appeals instead of real information.
How can advertising mislead consumers?
Through exaggerated or false claims about product quality.
How does advertising create monopoly power?
It builds strong brand loyalty, letting firms charge higher prices.
Why is advertising a barrier to entry?
New firms must spend heavily on ads to compete with established brands.
What does “self‑canceling advertising” mean?
When all firms advertise heavily, no one gains market share but everyone’s costs rise.
Why is self‑canceling advertising inefficient?
It raises costs without increasing demand, reducing profits or raising prices.
When is advertising good for society?
When it informs consumers, increases competition, and lowers costs.
When is advertising bad for society?
When it manipulates consumers, increases monopoly power, or wastes resources.