Industrial Organization

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nAdvertising Impact

nAdvertisement can increase or decrease the prices paid by consumers on the products of goods. Increase in prices because of advertisement does not necessarily cause negative effects on consumer welfare. Advertising has different effects on the elasticity of prices. It helps in differentiation of brands in illusory and real ways hence promote the strength of preference of some products over others (Martin, 2010, p.429). In addition, advertising increases memory for the names of products and enhanced the consumers size of consideration set. According to Martin, (2010) advertising effects on consumers depend on the situation of the choice. When customers are able to recall the products, it helps to reduce price elasticity. Advertising impacts on the assumed differences among the competitors products and the amount of brands deliberated for buying (Martin, 2010, p.430). Customers are willing to pay higher prices for specific brands over others because advertising offers preferences-relevant information.

nIn this respect, advertising create awareness and differentiating effect on consumers, which lead to higher prices. Moreover, the payment of prices for a brand occurs because of a set of brands in the market (Martin, 2010, p.432). If a bigger consideration is created causes higher number of substitutes and reduces prices. Therefore, advertising can increase the consideration set which tend to lower prices. Ultimately, the net impact of advertising on prices is based on the strengths of these forces.

nInformative Advertising

nInformative advertising create awareness to the consumer about the product and show it usefulness in the market. Additionally, informative advertisement focusing on the nutritional value indicates the product quality and increases their information. Informative advertisement provides details about the quality of ingredients, freshness, and techniques of processing (Martin, 2010, p.434). It also offers product characteristics such as sugar content, fiber and taste. However, when the customers have previous information about the nutritional product, informative advertising influences the trade-off between quality of brands and other brand attributes that it affects the choice of customers (Martin, 2010, p.434). If a firm uses huge amount of resources in informative advertisement promoting a brand, customers may think that the firm is in proper financial condition to produce nutritional products with modern technology and the best ingredients.

nSchumpeters Ideas about Innovation

nMartin 2010 argues that many innovative people are more likely to pursue Schumpeterian opportunities because they have a strong desire to develop their companies. Firms that have a strategic focus on proactive brands are likely to have Schumpeterian opportunities. Besides, Schumpeter suggests that innovators benefit from market concentration because of inadequate competition (Martin, 2010, p.451). Therefore, concentrated markets lead to innovative environment since they focus on higher levers of profits. He also argued that monopolistic organization could work on research and development (R & D) since they experience fewer uncertainties in the market and has huge stable funds. Additionally, small firms in a competitive market are best suited for stagnant resource allocation.

nNevertheless, huge firm in a concentrated market has a higher probability of faster progress and long-term development (Martin, 2010, p.451). Therefore, Schumpeter notes that perfect competition is not beneficial. The empirical research outcome identify that innovation produces economic change and market power. Moreover, innovation in the market offer better results as compared to price completion. Schumpeter further argues that innovation through technology provide temporary monopolies that helps to increase profits. Temporary monopolies are crucial because they allow incentives for companies to develop new processes and products (Martin, 2010, p.452).

nReferences

nMartin, S. (2010). Industrial organization in context. Oxford University Press.