Monopoly May Shift Demand

For one thing, we have assumed that the market demand curve is the same whether the industry is competitive or monopolized. But is this usually so? The demand curve will be the same if the monopoly firm does nothing to expand its market, but that is hardly plausible.

Under perfect competition, purchasers consider the products of all suppliers in an industry to be identical, and so no single supplier has any reason to advertise. Farmers who sell wheat through one of the major markets have absolutely no moti­vation to spend money on advertising because they can sell all the wheat they want to at the going price.

But if a monopoly takes over from a perfectly competitive industry, it may very well pay to advertise. If management believes that the touch of Madison Avenue can make consumers' hearts beat faster as they rush to the market to purchase the bread whose virtues have been extolled on television, then the firm will allocate a substan­tial sum of money to accomplish this feat. This should shift the demand curve out­ward; after all, that is the purpose of these expenditures. The monopoly's demand curve and that of the competitive industry will then no longer be the same. The higher demand curve for the monopoly's product will perhaps induce it to expand production and therefore reduce the difference between the competitive and the mo­nopolistic output levels. It may also, however, make it pos­sible for the monopoly to charge even higher prices, so the increased output may not constitute a net gain for consumers.

Дата добавления: 2015-08-03