The article “Informative Advertising with Differentiated Products” by Gene M. Grossman And Carl Shapiro offers a basic informative advertising approach for a variety of commodities that is just focused on delivering information. Advertisement performs an essential social purpose by informing buyers about the qualities of different brands and building the bond between customers and goods. Despite this, it illustrates levels of advertising being dominant in the broad and comprehensive cohort balance of oligopoly are always much more than necessary to maintain the balance (Grossman & Carl 63). Studies have been conducted to determine how changes in advertising technologies impact the state of equilibrium in product marketplaces, and we have discovered some intriguing results. This subject is growing more important as the new media and its integration reduce the target audience’s cost. According to the study, improved advertising effectiveness, such as lowering the cost per exposure, boosts market competitiveness as measured by demand elasticities, resulting in a price drop.
Furthermore, we discovered that cutbacks in advertising expenditures improve the degree of market variety. As a structural framework, it is met by the particular function of advertising cost we previously researched thoroughly, precisely the cost function concerned with the continued access and freedom-inspired readership technology that we previously investigated thoroughly. More investigation is required. To determine whether or not our findings apply to other product differentiation schemes. This model is unique because it indicates that the amount of variety accessible in the market is always excessive in the face of complete knowledge, which is not the case. Customers’ search behavior or other information acquisition activities would also contribute to this study, allowing it to be further enlarged.
The purpose of the research article, “The Role of Market Forces in Assuring Contractual Performance,” by Benjamin Klein and Keith B. Leffler, is to Examine the market contract enforcement mechanism in terms of the scenarios in which participants may choose to use it. Price increases are an effective method of guaranteeing contractual performance. A failing business forfeits a reduced stream of future sales returns more than the failure’s financial rise when the price is sufficiently higher than the recovered production costs. It nearly always results in a higher market price than competitive pricing, which explains why corporations invest in firm-specific assets. As a result, advertising expenditures are often seen as a trustworthy predictor of future firm success (Klein & Keith 631). As asserted by the Organization for Economic Cooperation and Development, the industry will do so if a company can earn more money by consistently supplying high-quality things rather than fooling customers by moving from low-quality products. Purchasing a high-quality product always while avoiding a low-quality product would boost the income created by a constant stream of high-quality products for the company in the issue.
Instead of saving money on low-quality products, customers should spend more money on high-quality ones. Businesses may make more money by selling a steady stream of high-quality items, but only if the commodity price stays sufficiently high regarding non-recoverable expenses (Musgrave). Competitors may join together to negotiate a lower price. Price-cutting rivals may be deterred from entering the market if they must incur unrecoverable costs. Among other things, the investment might take the shape of brand names or industrial capital. Customers may use the threat of not doing business with a firm to encourage firms to maintain outstanding quality standards. Many people are uncertain if growing prices are due to increased expenses or escalating premium pricing. Advertising aims to persuade customers that a company will continue to provide high-quality items in the long run.
Works Cited
Grossman, Gene M., and Carl Shapiro. “Informative advertising with differentiated products.” The Review of Economic Studies 51.1 (1984): 63-81.
Klein, Benjamin, and Keith B. Leffler. “The role of market forces in assuring contractual performance.” Journal of Political Economy 89.4 (1981): 615-641.
Musgrave, F. W. (2015). The Economics of US Health Care Policy: The Role of Market Forces: The Role of Market Forces. Routledge.