Chapter 16 Reflection

     The way I think about it, advertising limits the amount of competition a monopoly faces.  Through advertising efforts, a company has the ability to convince potential byers that their product is better and / or different from that of its competitor (product differentiation). If they succeed in doing so, they will be able to charge a higher price and also limit what their competitors sell.  I think this would be less and less so in the case of oligopolies and fair markets.  I consider pricing to be a form of advertising, and if the goal of marketing is to communicate to potential buyers the value of a firm’s product, then selling it for a certain price point is indicative of that goal.  For example, I know that I have been in retail pursuit of certain things that I may not be very familiar with, e.g. electronic goods and end up buying an item that may not be the most expensive, but also not the least expensive.  I usually choose the middle price point.  If I only have two choices for a certain good, I will probably choose the more expensive as long as the marginal cost is not too great.

          The effectiveness of advertising also has to be taken into consideration.  For example, any money spent of advertising should, hopefully increase gains in revenue.  If a certain marketing technique is clever and turns out to be worth the money because it increases sales, then it makes the cost worthwhile.  On the other hand, if a marketing technique fails to entice or attract customers, then that leaves room for the competition to fill the void.  Good advertising limits competition; poor advertising invites competition.  Advertising is not cheap, not to mention instrumental in the promotion of a good, thereby placing it as a priority in the marketing of a product. 

          The most interesting thing I learned in this chapter was about price discrimination.  Just as by any other kind of discrimination, it sounds like a bad thing.  However, in regards to maximizing profits, it seems like the logical thing to do especially in the given example in our text.  Selling books to two different groups with two different interest levels in the material may not sound fair, but if marketing shows that the die-hard fan base is willing to spend more for a copy – it makes sense to charge what they are willing to pay.  The most interesting outcome of price discrimination is that it actually increases economic welfare.  The Australian buyers, who would have initially been excluded from buying the book due to too high of a price are included when price discrimination is in effect, thus letting them enjoy the book.  This seems to be a win-win situation for consumers and producers.