ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Many oligopolistic markets are characterised by non-price competition. In such markets, advertising is the main competitive mechanism.

Detailed explanation-2: -By controlling prices, oligopolies are able to raise their barriers to entry and protect themselves from new potential entrants into the market. This is quite important, as new firms may offer much lower prices and thus jeopardize the longevity of the colluding firms’ profits.

Detailed explanation-3: -Therefore, in an oligopolistic market, advertising and selling costs have great importance. Usually, firms from such a market avoid price cutting and try to compete on the non-price factors. If they start under-cutting one another, soon a price-war can emerge, driving some firms out of the market.

Detailed explanation-4: -The creation of consumer loyalty to particular brands is mainly achieved through advertising, and it is in oligopolistic markets where branding, backed by extensive product promotion, is most prevalent. The markets for soap-powders, cereals, cars, confectionery and cosmetics provide a few notable examples.