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.
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