Chapter 17Monopolistically Competition

The Debate over Advertisement

The critique of advertisingControl people’s tastes

More psychological than informational

Convince people than their product is unique and efficient although it might not be true

The Defense of AdvertisementProvide information to customers, so that they can make better

choices

Make market more competitive

Does advertisement means quality?Economist says that advertisement means that it ensures quality.

Rational theory is that firms who are confident about the quality of their products advertise

but firms whose product is a mediocre choose to improve the quality instead of advertising.

What do people think about advertisement

Brand NamesWillingness to pay for consumers is higher for specific brand names.

Brand names provide consumers with information about quality when quality cannot be judged in advance