Check Your Understanding

1. Question

   For each of the following types of advertising, explain whether it is likely to be useful or wasteful from the standpoint of consumers.

   1. advertisements explaining the benefits of aspirin

      This type of advertising is likely to be useful because it provides new information on an important product.

   2. advertisements for Bayer aspirin

      This type of advertising is likely to be wasteful because it is focused on promoting Bayer aspirin over a rival’s aspirin despite the two products being medically indistinguishable.

   3. advertisements that state how long a plumber or an electrician has been in business

      This is useful because the longevity of a business gives a potential customer information about its quality.

2. Question

   Some industry analysts have stated that a successful brand name is like a barrier to entry. Explain why this might be true.

   A successful brand name indicates a desirable attribute, such as quality, to a potential buyer. So, other things equal—such as price—a firm with a successful brand name will achieve higher sales than a rival with a comparable product but without a successful brand name. This is likely to deter new firms from entering an industry in which an existing firm has a successful brand name.