Re: [OPE-L] oligopolies and consumers

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 donít 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

This archive was generated by hypermail 2.1.5 : Thu May 31 2007 - 00:00:08 EDT