Budweiser (now owned by a Belgium based beer company), Miller and Coors who together produce 85% of all beer consumed in the US, each spend well over $250 million a year on television advertising campaigns, promoting their beer brands. Obviously, if one firm is advertising its brands heavily, the others must also advertise to defend their market shares.

Do you think these firms would welcome congressional legislation which restricted the amount that any one firm could spend on advertising to $1 million yearly, and thereby allowed them all to drastically reduce their costs without fear of losing ground to each other? Are wireless telephone companies in the US market pursuing this scenario compatible with the practice of non-price competition? Explain your answer in both cases.

My answer would probably be yes in both scenarios because it would cost less to advertise because of the limitations. However I would think that if you had a limit there is no way to really out do the competitor.

Help please. Thanks

If advertising costs were limited, the major companies would probably lose some market share to smaller companies that didn't advertise as much.

Did you ever find the answer to this. I am working on it for my final now.

In both scenarios, the imposition of legislation that restricts the amount that any one firm can spend on advertising would indeed significantly reduce costs for all the firms involved. This is because they would no longer need to engage in costly advertising battles to defend their market shares.

In the case of the beer industry, the firms mentioned (Budweiser, Miller, and Coors) currently heavily advertise to promote their brands and compete with each other. If the legislation limited their advertising spending to $1 million per year, it would level the playing field and reduce the need for excessive advertising. As a result, all the firms would benefit from lower advertising costs.

Similarly, in the case of wireless telephone companies, if a similar advertising restriction were imposed, it would create a more balanced advertising environment. Currently, wireless companies engage in intense advertising campaigns to attract customers and defend their market shares. By limiting advertising spending, they could reduce costs and focus more on non-price competition, such as providing better services or innovative features, which would benefit consumers.

However, it's important to note that while advertising restrictions may reduce costs for the firms involved, it also limits their ability to differentiate themselves or gain a competitive advantage through advertising. This could potentially result in less dynamic competition and less innovation in the long run.

In conclusion, both scenarios have the potential for reducing advertising costs for the firms involved, but they also limit their ability to outdo their competitors through advertising. The impact on non-price competition would depend on how effectively the firms can differentiate themselves based on factors other than advertising.