Which best describes how advertising influences consumer choice in an oligopoly?

• A. Advertising always leads to perfect competition by informing consumers about all available options.
• B. Advertising eliminates product differentiation, causing all firms to compete solely on price.
• C. Advertising can create brand loyalty, making consumers less sensitive to price differences among firms.
• D. Advertising has no impact on consumer choice because products in an oligopoly are identical.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the nature of an oligopoly market structure, where a few firms dominate the market and products may be either differentiated or homogeneous.
2. Step 2: Recognize that advertising in an oligopoly often aims to create product differentiation, which can influence consumer preferences beyond just price.
3. Step 3: Analyze how advertising can build brand loyalty, making consumers more attached to a particular firm's product and less sensitive to price changes.
4. Step 4: Contrast this with the idea that advertising leads to perfect competition or eliminates product differentiation, which is generally not true in oligopolies.
5. Step 5: Conclude that the best description is that advertising in an oligopoly creates brand loyalty, affecting consumer choice by reducing price sensitivity.