Advertising

Question 1

Different types of advertising?

Answer 1

Persuassive :changes to consumers taste, increases differentiation and increases consumer loyalty

Informative: information on existence, characteristics, price

Question 2

what is Money burning n advertising

Answer 2

because our quality is high we can afford to spend loads on advertising - things low quality cant do - like Pepsi hiring a bunch of famous people and placing them in a hall for an advert

Question 3

what does advertising expenditure do to demand when demand is elastic? vs what does it do when it is inelastic

Answer 3

demand shifts more in elastic markets less in inelastic ones (cement vs soft drinks)

Question 4

Dorman steiner determinants

Answer 4

A/R = advertising-to-revenues ratio,
np = price elasticity of demand
na= demand elasticity with respect to advertising expenditure

nA measure how much quantity demanded increases (in%) when advertising expenditures are increases by 1%.

Question 5

how does np vary with market structure? as more firms enter the market

Answer 5

The greater the number of firms, the greater the price elasticity of demand, then the lower the pricecost margin; and the lower the optimal advertising
intensity.

Question 6

how does na vary with market structure? 2 ways it might affect

Answer 6

Advertising increases every firm’s demand equally

or

the more fragmented the industry is, the lower the benefit from advertising that is captured by the firm that pays for it. as an decreases as n increases

The only effect of advertising is to shift
demand across rival firms.

Question 7

what happens as n0 firms increases in advertising/revenue context

Answer 7

there are three effects on a/R:
i) each firm’s margin decreases;
ii) each firm captures a lower share of the demandincreasing effect of advertising;
iii) each firm captures a greater share of the demandshifting effect of advertising.
i) and ii) imply a decrease in advertising intensity, while
iii) an increase. The net effect is ambiguous

Question 8

what kind of advertising softens price competition

Answer 8

advertisement of price characteristics

Question 9

What kind of advertising increases price competetion

Answer 9

price advertisement

Question 9

what is the Bertrand trap in advertising?

Answer 9

lets assume that advertising shufts market shares between competitors

then all demand goes to the biggest advertiser and then the response until we reach cost and profits are 0