Why do oligopolists use product development and advertising?
A) They are less easily duplicated than price cuts as a competitive strategy.
B) They enhance the public good by providing information and new products.
C) They contribute to productive and allocative efficiency in markets.
D) They create conditions for mutual interdependence and support.

Question

Quizplus · Accepted Answer

Oligopolists use product development and advertising because they are less easily duplicated than price cuts as a competitive strategy. In an oligopoly, firms have limited price competition due to the few number of players in the market, so product differentiation and advertising are effective ways to gain an advantage over competitors without reducing prices. This helps to maintain profit margins and avoid a price war.

Answer: D
 Oligopolists use product development and advertising because they create conditions for mutual interdependence and support. In an oligopoly, firms often must consider the reactions of competitors when making decisions, and product development and advertising can help to establish a shared market with similar products and prices, creating conditions where firms can cooperate and mutually benefit from the market. By developing similar products and markets, firms reduce the risk of disruptive competition and encourage collaboration.

Why Do Oligopolists Use Product Development and Advertising