Essay Sample on Oligopoly and Advertising

Introduction

An oligopolistic market is one where a few firms dominate the market for specific products or services giving them power over price and other market aspects. Oligopoly is pure or perfect when the business manufactures similar products, and imperfect or differentiated when the business deals with varying products such as automobiles and electronics (Head and Barbara, 1416). Few sellers characterize an oligopolistic market with a large number of customers, constant advertisement of products, intense competition, entry and exit obstacles, and diversity in terms of size.

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Moreover, the businesses are interdependent; all firms in the competition have to respond to a change in strategy or price by one firm. Oligopolistic firms decide on product prices that will result in maximum returns eventually making room for partnerships with similar smaller businesses to boost their success. The nature of oligopolistic markets makes it almost impossible for new companies to join the already established markets without substantial financing or support from existing firms.

Non-price competition refers to competition between businesses dealing with improving the quality of goods and services, increasing their benefits, and using more qualified personnel without changing their prices. Advertisement involves promoting a company's goods and services to the public to achieve long term goals such as product branding or short term goals such as a direct increase in sales. Branding creates and sustains a firm's reputation making it outstanding in the market. Momentary advertisements are meant for sales promotions to boost revenue and increase cash flow. Products get advertised through various channels such as broadcast, print and support media such as billboards, direct marketing, for example, emails, product placement, and the internet. Advertisements aim to create awareness about specific products, remind the consumers about its existence in the market, change the perception of a brand and promote a company's image. Therefore, advertisements play a significant role in increasing a company's sales without making any alterations to the price of the goods and services making it a form of non-price competition.

Oligopolistic companies focus on advertisements since they can portray the superiority of their products without affecting the prices of their goods and services thus maintaining their profit margins. Additionally, it is harder for the competition to duplicate their advertising strategy as compared to other company changes, such as introducing new policies, thus making it a solid tool against their rivals (Schroeder and Victor, 10). In pure oligopoly, advertisements are only necessary when a firm has a new product line since the companies manufacture heterogeneous products.

The Super Bowl is a yearly event where the winners of the National Football Conference face those of the American Football Conference. Being a world-famous event, various oligopolistic companies such as Coca Cola and Google use the platform to advertise their products. The advertisements have several advantages such as promoting and speeding technological advancements (Hans et al. 120). The Super Bowl 2019 advertisements, for instance, showcase twelve different electric cars picking up groceries from Walmart on behalf of their owners. While the advertisement is meant to promote Walmart online shopping, it also inspires various motor vehicle brands to develop electric cars that can be programmed to run errands for their owners. Such commercials unfold and brace people to welcome new ideas and innovations, most of which are beneficial to society.

Secondly, advertisements introduce new firm products to the market thus enhancing competition. Pepsi Company launched Bubbly Sparkling Water through the Super Bowl commercials informing all their current and potential clients of its introduction to the market in different flavors. Its introduction also promotes healthy competition with other firms producing sparkling water such as La Croix resulting in increased economic efficiency. Similar advertisements are also able to prompt production since they increase the demand for the goods by creating awareness (Nocke and Nicolas, 520).

However, advertisements also have adverse effects on both the company and the consumers. They can bring about a self-canceling effect where two companies with similar products invest a lot in commercials which have no impact on the sales they make. Several car brands including Audi, Mercedes, Jeep, Toyota, and Hyundai advertised their models during this year's Super Bowl championship. Considering the popularity of all the listed brands and the already established client preferences, the advertisements may not result in significant changes in the sales made by the companies, if any.

Conclusion

Moreover, advertisements exploit consumers to change their preferences while conveying little or no helpful information about the product. The M&M Chocolate Bar commercial, for example, is a captivating advertisement meant to capture the audience's attention without giving any detail about the chocolate. Such advertisements may manipulate the consumer into buying expensive products while there are cheaper ones of a similar or even better quality. If similar advertisements get frequently aired, they create consequential brand names making it hard for new companies to enter the market. Moreover, they occasion reckless buying of the products by creating inessential needs among consumers thus resulting in monetary implications.

Works Cited

https://youtu.be/n9weiTXQjnshttps://youtu.be/8tlXmpyErey

Han, Shaohua, John S. Heywood, and Guangliang Ye. "Informative advertising in a mixed oligopoly." Review of Industrial Organization 51.1 (2017): 103-125.

Head, Keith, and Barbara J. Spencer. "Oligopoly in international trade: Rise, fall and resurgence." Canadian Journal of Economic/Revue canadienne d'economique, 50.5 (2017): 1414-1444.

Nocke, Volker, and Nicolas Schutz. "Multiproduct-Firm Oligopoly: An aggregative Games Approach." Econometrica 86.2 (2018): 523-557.

Schroeder, Elizabeth, and Victor J. Tremblay. "Strategic advertising policy in international oligopoly markets." The International Trade Journal 30.1 (2016): 3-13.