Which of the following is a positive effect of advertising by large oligopolists?

• A. It always leads to higher prices for consumers.
• B. It can inform consumers about product differences and innovations.
• C. It guarantees collusion among firms.
• D. It reduces consumer choice by eliminating competition.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the context of the problem, which involves advertising by large oligopolists. Oligopolists are firms in a market dominated by a few large sellers, and advertising can have various effects on consumers and market outcomes.
2. Step 2: Identify the possible effects of advertising in an oligopoly. Advertising can increase consumer awareness about products, highlight differences between competing products, and inform consumers about new innovations or features.
3. Step 3: Recognize that advertising does not always lead to higher prices. While it can increase costs for firms, it can also increase competition by informing consumers, which may prevent prices from rising excessively.
4. Step 4: Understand that advertising does not guarantee collusion. Collusion is an agreement among firms to restrict competition, which is illegal in many markets and not a direct consequence of advertising.
5. Step 5: Note that advertising generally increases consumer choice by differentiating products rather than reducing it. It helps consumers make informed decisions by highlighting product variety and innovations.