Market Structure: a Theoretical Approach to Effects of Advertising on Products Price and Quality

This study investigates the effects of advertising onprice and quality of products in monopoly and duopoly markets.We examine, by a diagrammatical approach, the state ofprofitability in a firm both before and after advertising beingimplemented. Our results show that advertising is directlyrelated to the price and profitability in a monopoly market;however, in the context of a duopoly market, the relationship isuncertain. Our findings also suggest that quality tends to behigher when the price is higher and vice versa. This conclusionholds true for the monopoly market and for the duopoly market.