Answer to Question #207504 in Microeconomics for vtg

Question

Discuss how you would expect a ban on liquor advertising to affect the profitability of:

- existing high market share liquor brands. (3)

- existing low market share; and (3)

- potential new entry of brands. (3)

Discuss some other products that sustains product differentiation through substantial advertising and promotion expenditures.

Answer 1

The ban on liquor advertising will increase the profitability of existing high market share liquor brands. Since the brand is already known and has a wide market, it will tend to increase customers.

The ban on liquor advertising will stagnate the profitability of the existing low market share. This is because they will be denied a chance to increase their market through advertising. They will then keep on operating in the small market making a small profit.

The ban on liquor advertising will lower the profitability of potential new entry of brands. This is because the new brands will not reach many customers as the wider market will not be aware of their existence.

Mineral water and ice cream products sustain product differentiation through substantial advertising and promotion expenditures. This allows them to compete because the consumer purchases any brand because they don’t know the real difference but chooses one anyway.