UGC NET Commerce Q50

Question

Read the given passage and answer the questions that follow
There is a question whether advertising induces demand for an individual company's product more or less elastic. The evidence indicates that the advertising of brands tends to make their demands relatively inelastic for varying periods of time. The data which support this condition are found in the relatively rigid prices of many advertised articles. That brand advertising would have this effect is natural, for an objective of brand advertising is to build consumer preferences. Some consumers will stick by a brand even though its price relationship with competing brands are disturbed. Clearly, the establishment of strong brand preference has led some manufacturers to act as though these preferences made the demand for their brands relatively inelastic. Rarely have they tested the inelasticity of their brands by raising and holding up their prices when competitors have failed to follow similar procedures. Yet, numerous examples were found in which manufacturers in periods of depression held their prices rigid while prices generally and the prices of some competitors were being lowered. In all such instances price competition was found to come into play sooner or later, and either demand shifted to sellers with lower prices or a reduction in price was forced. The quickness with which price competition comes into play varies in different product fields. In the fields of proprietary remedies, the highly individualised nature of the branded products and the tendency of consumers to build strong attachments to brands has given these brands an inelastic demand over relatively long periods of time. Even in these instances, however, price competition has eventually developed.
The passage focuses upon

Accepted Answer

Price competition and branded products