A potential negative effect of advertising for society is that it can
A) be the major cause of price wars among firms in the industry.
B) reduce mutual interdependence and increase competition.
C) be self-canceling and contribute to economic inefficiency.
D) lower barriers to entry and undermine profits in the industry.

Question

Quizplus · Accepted Answer

Advertising can lead to a self-canceling effect where firms increase their advertising spending to compete for the same market share, leading to economic inefficiency. This can happen when firms engaging in advertising have a similar product, and the advertising does not change consumer preferences significantly. As a result, the increased cost of advertising is passed onto consumers through higher prices, reducing their welfare without increasing the firms' profits or overall market share.

A Potential Negative Effect of Advertising for Society Is That