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Key Determinants of Advertising Expenditure in Monopoly Markets

This document explores the essential factors influencing advertising expenditure in monopoly markets, focusing on disposable income, unemployment, and government regulation. It emphasizes the importance of informative and persuasive advertising strategies for product launches and market share growth. The Dorfman-Steiner condition is analyzed, highlighting the relationship between advertising elasticity of demand and price elasticity of demand. Insights include optimal advertising strategies based on elasticity comparisons, demonstrating why monopolists will continue to advertise until marginal cost equals marginal revenue.

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Key Determinants of Advertising Expenditure in Monopoly Markets

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  1. Class 11

  2. Advertising • Determinants of adv. Expenditure: • Disposible income • Unemployment • Government regulation • Informative and persuasive ads. • Launch product • İnformation provision • İncrease mkt. Share • Brand image

  3. Monopolist • Monopolist would advertise until MC of advertising is equal to MR of advertising • Diminishing returns • Dorfman – Steiner condition: • Share of advertising= ratio of advertising elasticity of demand and price elasticity of demand • When advertising elasticity is high relative to price elasticity, it is efficient to advertise • When price elasticity is high relatie to advertising elasticity, it is efficient to cut price

  4. Figure 13.1Advertising and profit maximization in monopoly

  5. Figure 13.2Advertising, market structure and concentration

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