The top-rated Super Bowl commercial of 2015 was created by Anheuser- Busch.
There are sectors of the economy that are doing well.
Firms that advertise during the Super Bowl build brand recognition and competition.
About 1% of global economic activity is spent on advertising.
In absolute terms, worldwide advertising costs are over half a trillion dollars a year.
The answer is a little of both in this section.
The goal of advertising is to drive additional demand for the product being sold.
A variety of techniques are used in advertising campaigns.
An important piece of information about the product is highlighted in advertising.
The table shows how the process works.
FedEx's slogan is "When it absolutely, positively has to be there overnight."
FedEx has differentiated itself from its competitors and some customers are willing to pay a premium for overnight delivery.
A successful advertising campaign will change the demand curve in two ways: it will shift the demand curve to the right and change its shape.
This change can be seen in Figure 12.5.
The demand curve shifts to the right in response to the advertising.
The demand curve becomes more inelastic.
The change in shape is due to the fact that advertising highlights features that make the product attractive to specific customers who are more likely to want it.
The firm can raise its price because demand is inelastic after advertising.
Information that consumers may find helpful in matching their preferences is conveyed in advertising.
Advertising tells us about the price, location, and introduction of new products.
Firms use advertising to underprice one another.
Firms that run expensive advertising campaigns invest a lot in their product.
It is highly unlikely that a firm would spend a lot of money on advertising if they didn't think the process would work.
A rational consumer can see that firms spending a lot of money on advertising are more likely to have a better product than a competitor.
Advertising isn't as productive in all market structures.
The markets that function under monopolistic competition invest the most in advertising.
What happens here stays here.
Travelers will have a better vacation than anywhere else according to the slogan.
The emphasis on quality and performance appeals to buyers.
Betcha can't only eat one.
The message that one potato chip is not enough to satisfy your craving appeals to chip buyers who choose better taste over cheaper generics.
Widespread acceptance is one of the main reasons for carrying a credit card.
Advertising informs consumers about differences that they care about, which makes the demand curve more inelastic.
The demand curve for the firm's product is more vertical after advertising because consumers want the good more intensely.
Competitive firms sell nearly identical products at the same price.
Advertising raises a firm's costs without directly influencing its sales.
Advertising for a good that is undifferentiated functions like a public good for the industry as a whole: the benefits flow to every firm in the market through increased market demand for the product.
Consumers can find the product at many competing locations at the same price because each firm sells essentially the same good.
An individual firm that advertises in this market is at a competitive disadvantage because it will have higher costs that it can't pass on to the consumer.
This doesn't mean that we don't see advertising in competitive mar kets.
Although individual firms do not benefit from advertising, competitive industries as a whole can.
The campaign began in 1992 and has been credited with increasing the demand for beef products.
The National Cattlemen's Beef Association puts millions of dollars into advertising each year.
This is an example of how firms should think about the consequences of losing market share beyond their advertising budgets.
Mars didn't protect its position in the market.
Firms with differentiated products are more likely to advertise under monopolistic competition.
The advertising behavior of pizza companies is being looked at.
National pizza chains such as Domino's, Pizza Hut, Papa John's, and Little Caesars have commercials on television.
Each firm's advertising increases demand for its product because it is slightly different.
The gains from advertising go to the firm.
A strong incentive to advertise to gain new customers is generated by these benefits.
Advertising becomes the norm among monopolistically competitive firms because each firm feels the same way.
The Super Bowl commercials are watched as much as the football game.
Fans love these ads.
There are different reasons why economists pay close attention.
There have been thirteen recent Super Bowls.
When a brand is able to achieve product differentiation through advertising, what happens to the demand curve?
Coca-Cola and Pepsi are considered to be oligopolists rather than monopolistic ing from the perspective of both the brand competitors.
In the next chapter, we'll discuss oligopoly.
brick- and- mortar retailers include Sears, Penney's, and The Gap.
Depending on how old you are, you probably spent a lot of time in one of these stores.
The growth and viability of The Gap and Kohl's appears to be back on track.
It could also make it, too.
It looks like Sears might be in a death spiral after posting three straight years of losses.
Sears credit card was as important as American Express a few generations ago.
The Sears catalog was the first to allow non- city dwellers access to products previously only available in cities.
Since the mid-2000s, bad manage ment and online giant Amazon have had major impacts.
Sears lost business in the early 1990s.
The rapid rise of Walmart gave consumers lower prices because of its sophisticated inventory control.
Sears lost focus on its main retail business because it diversified into many areas.
Because of the way Sears had expanded, its cost structure was higher than Walmart's, so it had to become more efficient to survive.
You never know where your most fierce competitor will emerge from, and a busi ness must never take its success for granted.
That's where Walmart started.
A unique product is sold by the monopolist.
The monopolist is less likely to advertise than a monopolistic competitor because consumers have few good alternatives to choose from.
Firms don't have to advertise to get business when consumer choice is limited.
The lack of a competitive aspect means there is no need to advertise to keep consumers from changing products.
That doesn't mean that the monopolist doesn't advertise.
The monopolist might want to advertise to inform the consumer about its product.
If the gains from advertising are enough to cover the cost of advertising, this strategy can be beneficial.
Most of the world's supply of rough- cut diamonds is controlled by De Beers.
The company doesn't need to advertise in order to fend off competitors, but it does want to create more demand for diamonds.
The "A diamond is forever" campaign was created by De Beers.
There are benefits and drawbacks to advertising.
Advertising raises costs and can be dishonest.
The firm's average total cost curve shows advertising costs.
When a firm advertises, it hopes to increase demand for the product and sell more units at a higher quantity.
The firm will enjoy economies of scale if it can sell enough additional units.
The return on advertising investment looks good.
Under monopo listic competition, each firm is competing with many other firms selling somewhat different products.
Rival firms will use their own advertising.
Advertising is the norm in monopolistic competition.
Competitive advertising is used by each firm to win new customers.
The impact on each firm's demand is largely canceled out.
Costs rise from ATC1 to ATC3 on the higher curve, but demand may stay the same in the first quarter.
Higher costs are created by advertis ing.
Advertising raises costs for the producer.
It raises prices for consumers.
The advertising efforts of monopolistically competitive firms cancel each other out.
A nice gift is pearl ear studs.
Brand loyalty can mean higher prices.
An example can be looked at.
You could buy all your jewelry at Tiffany's.
You go to the store one day and pick up pearl ear studs.
Tiffany's sells a small pair of pearl studs for $300.
You can get studs of the same size, quality, and origin at Pearl World for $43, and you can find them online at Amazon for $19.
Buying ear studs is like consuming many other goods because name recognition is important.
The staff dress, how the jewelry is packaged, and the storefront are some of the things jewelry buyers look at.
A lot of money is spent for the privilege of getting Tiffany's blue box.
Consumers think Tiffany's jewelry is better when all the store is doing is charging more.
The graph is for DiGiorno.
The graph shows the generic pizza.
"It's not delivery" is the slogan of DiGiorno.
The product is just as good as a freshly delivered pizza.
Some customers who buy frozen pizzas will opt for DiGiorno over comparable generics because they are familiar with the company's advertising claim about its quality.
DiGiorno has an incentive to make sure the product is delivered.
The customer doesn't have high expectations about the quality of the brands because they are purchased mostly on the basis of price.
Advertising campaigns are designed to produce a psychological response.
When an ad moves you to act in a certain way, it becomes manipulative.
There is a temptation to lie about a product because of the power of advertising.
The FTC regulates advertising and promotes economic efficiency in order to prevent firms from spreading misinformation.
The Division of Advertising Practices at the FTC protects consumers.
The commission doesn't have enough resources to track down every violation, but it does pay attention to claims involving food, nonprescription drugs, alcohol, and tobacco.
Unsubstantiated claims are very popular on the Internet, and they tend to target vulnerable populations seeking quick fixes to medical conditions.
Even with regulatory oversight, consumers must still be vigi lant.
The FTC can remove products from the market, but can't fine companies that make false claims.
The damage is already done.
Kevin Trudeau was a staple of infomercials for over a decade.
Trudeau writes books about simple cures for medical conditions.
He is a smooth talker.
Trudeau and a good looking woman are having a conversation about the product in the infomercial.
Trudeau's claims are often not true.
The FTC had taken Trudeau to task before.
In 1998, the commission filed a lawsuit against him, accusing him of making false and misleading claims about his products that he claimed could cause significant weight loss, cure drug addictions, and improve memory.
Product differentiation is important in markets where franchises are valuable.
Customers who prefer a certain type and quality of food know that the dining experience at each McDonald's will be the same.
This guarantee can be used to set up a bank of big- screen TVs.
The franchise owner has the exclusive right to sell failures in the restaurant industry.
There is a ferentiated product in the area.
Suppose you want to open a restaurant.
You can purchase a franchise ing plan and locate anywhere you want.
If more potential customers notice your Golden Corral and Buffalo Wild Wings are two restaurants, that will drive up revenues.
Golden Corral is the largest buffet- style do $1 million in annual sales as part of a franchise, and Buffalo Wild Wings is only half a million on your own.
One of the top places to watch sporting events.
It would make more sense to avoid revenue if you could open your own buffet profits, as a healthy chunk of it will turn into franchising costs.
This is what franchising is all about.
The misconception that advertising increases the price of goods and services without adding value for the consumer was discussed in this chapter.
Advertising does cost money, but that doesn't mean it's harmful.
Advertising can increase demand, build brand loyalty, and give consumers useful information about different products.
Monopolists can earn an economic profit in the long run if their business is free of barriers to entry.
Monopolistic competitors fail to maximize output for society.
The entire story is not told by this observation.
Monopolists have more market power and create more excess capacity.
The competitor lacks the ability to exploit consumers.
The result is not perfect, but it serves consumers and society well.
Competition is characterized by free entry and many firms selling differentiated products.
Differentiation of products can be done by style or type, location or quality.
Monopolists are price makers that have downward sloping demand curves.
The firm can mark up the price above marginal cost when the demand curve is downward.
Excess capacity and an inefficient level of output are the results.
Barriers to entry allow a monopoly to make a profit.
This isn't the case for competitive markets.
Under monopolistic competition, advertising gives information about the price of goods, the location of products, and new products.
It shows differences in quality.
It is harder for other businesses to enter the market when advertising encourages brand loyalty.
Advertising can be deceptive.
There are three long runs.
monopolistic competition is inefficient.
Consider two different companies.
Take that competition into account.
There is a price and a markup for Titleist.
The price and put for the generic firms are shown in a separate graph.
There is a restaurant in a small town.
The owner of the restaurant marks up his food.
Generic golf can help explain why retail customers pay so much.
The florist business has more purchases of books and other items.
Firms are free to enter the store.
At any time, the bookstore has a market and exit.
Firms will enter because of power.
It pays to your friend's shop to advertise.
A firm makes cardboard.
When florist shops open, the added product will cause prices to go down, causing producers to lose market power, and your friend's profits to go down.
He won't be able to make more money than his rivals because advertising expenses will only make their cost.
That isn't come from the Italian company to say that they won't be able to save enough for ottica.
The major retail firms won't be able to sail around the world as he would like because other firms will their brands if they do.
If you don't enter the market and limit his profits, you should care about the brand of eyeglasses that you forward.
The cardboard firm makes a product.
Online retailers aren't selling a brand, so that is a component used mostly by other, and they attract customers with much more elastic firms that need to package final products for demand compared with customers who want sale.
Any attempts at advertising will make their frames fashionable.
This scenario only raises costs without increasing demand.
This situation is different from brand loyal customers, who are more likely to buy from a bookseller who advertises to attract higher prices than firms with customers who don't shop at the store.
Care about the brand is a result of more traffic.
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