Importance of Advertising for Firms in Monopolistic Competition Essay

Importance of advertizing for Firms in Monopolistic Competition - Essay ExampleThis paper illustrates that advert is an important feature of squares that care secernate products. Firms found in a monopolistic competition, oligopoly and at times withal monopoly market body structure practice publicise. Monopolistic competition is a market structure with a large number of firms do a similar product. However, each firms product is differentiated from its competitors and hence is unique. An exemplification of much(prenominal) a market structure is fast-food restaurants. Although these fast-food restaurants such as Hardees, McDonalds, Burger King, Subway, Wendys and KFC provide the same product, that is, fast-food, however, each of their products has roughly differentiation which makes it unique from their competitors. An oligopoly is a market dominated by a few large firms. An example of an oligopoly market structure is of cigarettes. Just like monopolistic competition firms in an oligopoly similarly have differentiated products. Due to this product differentiation, these firms are able to attract customers. Advertising is then done to create shuffling loyalty. Brand loyalty is the faithfulness of customers to a particular stake expressed through repeated purchases from that brand without coming into the market pressure generated by its competitors. As a result, firms spend heavily on their advertising campaign so that customers stick to their brand and are not won over by their competitors brands. Although advertising is necessary to create brand loyalty much also depends on the nature of the product and the press stud of demand for the product.... However, firms are profit maximizing. Firms publicise because they want to increase the demand for their product and hence their scratch. When firms advertise just to increase the demand for its own product then it might hurt the rivals. A firm may use advertising to differentiate its product from its co mpetitors. For example in the case of the fast-food restaurant sedulousness Hardees may advertise a different type of burger which is not produced by the other competitors. much(prenominal) advertising would help Hardees to attract customers not only outside the fast-food market but also existing customers of its competitors. This example clearly shows that if Hardees is able to advertise its new burger successfully then it go away be able to increase the demand for its product leading to higher revenues that allow for result in a greater profit. Advertising is also done to create barriers to entry so that more firms cannot cypher the market and find it hard to compete. For example an existing firm like coca dumbbell will advertise to increase its customer base in the soft drink market. Through its advertising campaigns Coca Cola will be able to create brand loyalty. If a new firm wants to levy the soft drink market it would find it very hard to attract customers because fir ms like Coca Cola have already captured the market and created brand loyalty amongst their customers. Advertising also helps to make the demand for a product relatively inelastic. Once the demand is inelastic the customers buy the firms product even when the price of the product rises. A benefit of this inelasticity to the firm is that even if the business is not doing well and profits are low the firm can still generate greater profits by charging its customers a