From: glevy@PRATT.EDU
Date: Sun May 06 2007 - 10:00:23 EDT
>> Jerry on 05/02/2007: In an oligopolistic market with product differentiation the emphasis is generally on promotion (advertising, marketing) rather than on developing technological breakthroughs and engaging in price competition. Furthermore, entry into such a market is generally made possible not by technological progress but by promotion (and, of course, large sums of money capital to open operations and/or merge with other firms already in the market). << Alejandro wrote: > I don’t know exactly what are you trying to mean here. If the superfluous of promotion; you are underestimating the difficult task of identifying and targeting preferences, by the way, a task underestimated by classical Marxism in the belief that the planner could directly target real preferences. Taking a look at the controversy of interpersonal comparisons of utility in Welfare Economics revels that it is not just an issue of common sense. The Marxist objective notion of value could be reason of this underestimation.< Hi Alejandro: Here's what I mean: the experience is often in oligopolistic markets that the competitive emphasis by oligopolies is on product differentiation (often minor stylistic changes and the use of advertising and marketing to promote consumer preferences and brand loyalty) rather than technological change. This doesn't mean that there is no technological change in oligopolistic markets (obviously there is) but it is not the major dynamic at work in such a market. By not (generally) engaging in price competition, oligopolies can set prices higher than would have been the case in more classically competitive markets and thereby receive higher profit margins. This ability to set prices is related to the success of the strategy of product differentiation: i.e. their ability set prices is a consequence of their ability to convince consumers through advertising and marketing that their product is different from the commodities sold by their rivals (even if the product is basically the same). Once brand loyalty is formed, oligopolies can charge a price which is a form of *quasi-rent* which consumers pay. Think about the price of sneakers, for instance. The doctrine of consumer sovereignty (and the marginal utility theory of consumer choice) is a reactionary pro-business dogma and a counter-factual myth. That myth which claims that consumers through their expenditures in the marketplace tell business firms what to produce and what prices they will pay assumes (among other things) that: * consumer preferences are exogenous (they are supposed to simply drop from the sky, rather than be influenced by firms); * there is rational behavior by consumers; * consumers have "perfect information" about the prices and qualities of all commodities that they might purchase on the market; * there is no firm advertising (since under the assumption of perfect information, firm advertising is "wasteful" in that it provides consumers with information they already know); * markets are perfectly competitive. In solidarity, Jerry
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