What are the positive effects of large oligopolists advertising?
Multiple select question.
It lowers search costs of information for consumers.
It enhances competition and reduces monopoly power.
It eliminates competition among firms.
It helps reduce demand for material products.
is needed in
strengthens
does not influenceOver a long time period, cheating Blank______ ?collusive oligopolies
Multiple choice question.
threatens
is needed in
strengthens
does not influence
The correct answer and explanation is:
Positive Effects of Large Oligopolists Advertising:
- It lowers search costs of information for consumers.
- It enhances competition and reduces monopoly power.
Explanation:
Advertising by large oligopolists has significant economic implications.
- Lowering Search Costs:
Advertising reduces the time and effort consumers spend searching for product information, improving market efficiency. Through advertising, consumers are informed about product features, prices, and benefits, making it easier to compare options and make purchasing decisions. For example, if multiple companies in an oligopolistic industry promote their products, consumers can quickly discern which product best meets their needs without extensive research. - Enhancing Competition and Reducing Monopoly Power:
While oligopolists dominate industries, advertising encourages competition within the market. Firms strive to differentiate their products through branding and messaging, challenging rivals to improve quality, innovate, or lower prices to attract consumers. Consequently, advertising can weaken monopolistic tendencies by fostering greater competition among the few firms in the market.
Cheating’s Effect on Collusive Oligopolies:
Correct Answer: It threatens collusive oligopolies.
Explanation:
In collusive oligopolies, firms collaborate—often tacitly or explicitly—to fix prices, limit output, or divide markets to maximize collective profits. However, such agreements are inherently unstable due to the temptation for individual firms to cheat.
When a firm undercuts the agreed price or increases output, it threatens the collusion by destabilizing mutual trust. Cheating often results in a breakdown of the agreement as other firms retaliate, leading to price wars or intensified competition. Over time, the collusion becomes unsustainable.
For example, in industries like airlines or oil, even tacit price-fixing agreements collapse if one firm secretly offers discounts to capture a larger market share. Thus, cheating undermines the stability and effectiveness of collusive arrangements.