Advertising & Economics

There is no fixed formula for advertising success. For this reason, the results of economic studies are often qualified by statements indicating that an effect may hold true only if certain conditions are present. What works for one firm might not work for another firm facing stronger competition. A comparative advantage or an economy of scale may exist only for a period of time before the relative advantage begins to fade. Nonetheless, it can be shown that various relationships between advertising and economic advantages can, and often do, occur.

This paper will examine the role of advertising in establish-ing and supporting product differentiation, and will explore the relationship between successful product differentiation and market power. It will support the argument that product differentiation through advertising can create market

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t newcomers will not achieve. New competitors can expect to "incur disproportionately high advertising outlays" per dollar of sales on an ongoing basis to win sales from buyers with brand loyalty. Finally, new compe-titors can expect to incur higher levels of initial capital invest-ment because they have to finance start up costs and advertising simultaneously before any sales revenue is generated. Advertising therefore can be used to create product differen-tiation, which becomes a form of market power by reducing the price elasticity of demand and creating higher costs for potential compe-titors. As will be shown in the next section, this advantage is particularly pronounced for original or early entrants into a market because of natural economic forces. Product Differentiation and Entry Barriers The advantages of product differentiation are most likely to accrue to original or early entrants into a market, as well as to established and larger firms. The primary advantage enjoyed by any initial entrant which succeeds in product differentiation is that new competitors will have to incur higher advertising costs to cut into the established goodwill and brand loyalty created by the leader's advertising effort. These highe
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Some common words found in the essay are:
Motors Ford, Dorfman Steiner, Differentiation Product, Entry Barriers, Singapore Malaysia, Power Recent, , Conclusion Advertising, Bayer Aspirin, Arun Savara, product differentiation, brand loyalty, market power, market shares, price elasticity, economies scale, market share, elasticity demand, price elasticity demand, entry barriers, market pioneers, form market power, product differentiation advertising, larger scale production, markets foreign competitors,
Approximate Word count = 3895
Approximate Pages = 16 (250 words per page)