Micro Ch 16 1 Monopolistic Competition a Two extremes i Perfect competition ii Monopoly b Between these extremes identical products 1 Many sellers 2 Product differentiation 3 Free entry and exit i Monopolistic competition Many firms sell similar but not ii Oligopoly a few firms that offer similar or identical products 2 Advertising a The more differentiated the products the more advertising firms buy b Critics i Society is wasting resources it devotes to advertising ii Firms manipulate peoples tastes iii Advertising impedes competition 1 Creates perception that products are more different than c Defenders they are i Provide useful information to buyers ii Informed buyers can more easily find and exploit price difference 1 Promotes competition 2 Reduces market power d Eyeglasses advertising i Critics wrong no advertising leads to higher prices ii Defenders right more advertising lowers prices because it makes the market more competitive
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