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OU ECON 1123 - Brands and Advertising and Monopolistic Competition

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ECON 1123 1st Edition Lecture 21 Outline of Last LectureI. Antitrust PolicyII. Measuring the Extent of monopoly powerIII. Contestable MarketIV. Monopolistic CompetitionOutline of Current LectureI. Characteristics of Monopolistic CompetitionII. BrandsIII. Persuasive AdvertisingIV. Comparison between monopolistic competitive firms and perfectly competitive firmsCurrent LectureI. Characteristics of Monopolistic Competition1) Many small firms which are largely independent of competitors price changes2) Entry or Exit is relatively low in cost3) Product differentiation: achieved by: better location, branded productsII. BrandsBrands effectively are promises of performanceFinancial times- estimated value of brands:#1 google- $90 Billion just for the name#2 General Electric- $70 Billion*8 out of top 10 brands in the world are AmericanExample of the power of brands: People will pay more for the exact same car if it is a ToyotaBrands convey market power (some control over price)Brands brand themselves by using clever packing, and advertisingIII. Persuasive AdvertisingPotential benefits:These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.-increased information about price and quality-reduces search costs-to reduce costs by increasing sales (economies of scale)Persuasive advertising:-Zero Sum=> one firm gains customers while the other firm loses customers-little information potential for the sale of inferior quality productsIV. Comparison between monopolistic competitive firms and perfectly competitive firmsThe demand schedule for a perfectly competitive firm will be perfectly elasticThe demand schedule for a monopolistic competitive firm will be less than perfectly elastic but still highly elasticThe monopolist will take a different price determined by the market depending on the level of output that they produce. They will charge the highest price possible for that outputThe maximum price people are willing to pay for any level of output is shown by the demand schedule=dmcPmc= profit max/loss min charged by the monop comp firmThis sequence of output and pricing decisions is the same as that followed by pure


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