THE DIFFERENTIATION CONCEPT, PROMOTION AND ADVERTISING SALES FROM MONOPOLISTIC COMPETITION MARKETS

The market is an economic force of society, both for people who are among the lower classes or people who are among the upper classes. All elements related to economic problems exist in the market starting from the elements of production, distribution, or consumption elements.

Issues discussed are regarding product differentiation markets, promotion and sales of advertisements in monopolistic competition markets.

Monopolistic Competition Market is a market where there are many producers producing goods with different features (differentiated products). Sellers in the monopolistic market are not limited, but each product must have its own character that distinguishes it from other products. Example: shampoo, toothpaste, and others. Although the functions of all shampoos are the same, namely to clean hair, each product produced by different manufacturers has special characteristics such as differences in aroma, color difference, aroma, packaging and others.

In the monopolistic market, producers have the ability to influence prices, although the effect is not as big as the producers of the monopoly and oligopoly markets. This ability comes from the nature of the goods produced. Because of the differences and characteristics of an item, consumers will not easily switch to another brand, and still choose the brand even if the producer raises the price. For example motorbikes in Indonesia, motorcycle products are indeed homogeneous, but each has its own characteristics. Just mention the Honda motorcycle where the special feature is the fuel that is not wasteful. While Yamaha has the advantage of a stable engine and rarely damaged. As a result, each brand has its own loyal customers.

In Monopolistic competition markets price is not a factor that can boost sales. How the company's ability to create a good image in the minds of the people so that they are willing to buy the product even though the price is expensive will greatly affect sales. Companies in a monopolistic market must actively promote products while maintaining the company's image.

Market Characteristics of Monopolistic Competition

1. There are many sellers

There are quite a number of sellers in monopolistic competition markets but not as many as in perfect competition markets

2. The goods have different characteristics

This characteristic is the most important characteristic in distinguishing between monopolistic competition markets and perfect competition. As explained, in perfect competition the production of various companies is similar. Therefore it is difficult to distinguish which one is the production of one company and which is also the production of other companies. Production in a monopolistic competitive market is differentiated (differentiated product) and physically easy to distinguish between the production of one company with the production of other companies. Besides the differences in the physical form of the goods there are also differences in packaging, differences in the form of "company services after sale", and so are the ways of payment. As a result of these differences, goods produced by companies in monopolistic competition markets are not perfect subtitute goods to goods produced by other companies. They are just close substitutes or close subtitles. The difference in the nature of the goods produced is the source of monopoly power, even though it is small owned by the company in monopolistic competition.

3. Companies Have Little Power to Affect Prices.

Unlike companies in perfectly competitive markets that do not have the power to influence prices, companies in monopolistic competition markets can affect prices. However, power influences relatively smaller prices, compared to oligopolies and monopolies, so that this difference causes buyers to be increasingly choosy.

4. Entering into the industry relatively easy.

All companies can enter or leave this market without any obstacles. Companies that will enter and conduct business in monopolistic competition markets will not experience much difficulty. But entering the market is not as easy as in a perfectly competitive market.

5.  Sales Promotion Competition is Very Active

To influence the taste of buyers, entrepreneurs enter into non-price competition, but rather focus on product quality and design, carry out continuous advertising activities, provide attractive sales conditions and so on.

Every company in the monopolistic competition market will try to produce goods which have special characteristics and which can be clearly distinguished from the production of other companies. Then in the market there will be a variety of goods produced by an industry that has a different style, quality, design, fashion, and brand. The existence of various variations of a type of goods is a special characteristic of the monopolistic competition market which is not in perfect competition.

To each company, goods with different characteristics will be a special attraction for the goods they produce. Certain groups of consumers would prefer to buy their goods (although the price is more expensive) when compared to similar goods produced by other producers. Thus the differentiation of production can create a form of monopoly power. By producing a certain item that is different from other goods, the company creates an obstacle for other companies to attract customers.

  To consumers, similar but different features of the same type give rise to an advantage, namely their choice to buy something more diverse. This allows them to choose items that are truly in accordance with their wishes. As mentioned earlier, many economists view the diversity of choices as a compensation for the inefficiency of monopolistic competition in the use of resources.

In modern companies the activity of preparing and making advertisements is an important part of efforts to market their products. Expenditures by companies for advertising include sizable amounts that sometimes cause a significant increase in production costs. The companies carry out advertising activities to achieve one or a combination of the three goals stated below:

1) To provide information about the product

Advertising like this is done to provide information to consumers about a product. The advertisement might be for items that have been around for a long time, or for items that have just been developed. Ads like this are called advertisements providing information or advertising information.

2) To emphasize the quality of a product persuasively

Advertising like this is done to explain to consumers the excellent quality of a product. Some forms of advertising aim to constantly remind consumers that the goods are on the market. Ads like this are called advertisements to compete or competitive advertising. Without advertising like this, consumers can change their attitude and become a subscription to other companies that produce the same goods that are always advertised.

3) To maintain good relations with consumers

The advertisement is more in the form of introducing the company about its activities. Advertising about the results of its production is not so emphasized. This advertisement is also carried out to avoid the government's advertising prohibition (for example cigarette advertisement).

Among these three types of advertising, what companies do in monopolistic competition markets is the first and second types of advertising. The first type of advertising is mainly used when a company introduces new production results. While the second type of advertising is used to maintain its position in the market.

Advertising can increase or decrease the cost of production per unit that depends on changes in demand that occur as a result of the advertising activities carried out. If demand becomes highly elastic, then it is probable that the cost of production per unit will be lower. However, other possibilities may apply that in general advertising causes an increase in production costs. This difference of opinion can be explained by using the following picture.

If the company advertises production costs will be high and this is reflected by an increase in the average cost curve from AC to AC1. At the same time the business of promoting sales through advertising causes the demand for company production to increase. If the demand increases from D1 to D2, the current long-term balance is indicated by point B. This has caused the amount of goods sold to increase from Q1 to Q2, but the ad increases the price from P1 to P2. Based on the situation just described, a group of economists believes that advertising is a waste because it raises the cost of production without making any changes to the shape, weight and quality of an item.

A group of economists disagrees with the conclusions above and vice versa believes that advertising is very useful because it will be able to reduce the cost of production per unit. Sales promotion through advertising, according to them, will cause demand to change from D1 to D3. So the long-term balance of a monopolistic company that engages in advertising activities will be achieved at point C. This means that advertising increases the number of sales quite a lot, from Q1 to Q3. This much increase in sales causes lower production costs per unit, and allows companies to sell their goods at prices lower than prices when there were no advertisements (P1), ie the current selling price is P3. Other views that support advertising aside because production costs that might be lower, the group that emphasizes the virtues of advertising suggests the following virtues:

1. Advertising helps consumers to make better decisions in determining the type of product.

2. Advertising will promote activities to improve the quality of a product.

3. Advertising helps finance mass communication companies such as radio, television, newspapers and magazines.

4. Advertising increases job opportunities.

Opinions that criticize advertising aside from getting support because it raises several benefits for companies and the public, advertising is also a subject of criticism because it has some negative traits. The following description provides an overview of some of the criticisms of advertising:

1. Advertising promotion is a waste.

2. Advertising does not always provide correct information.

3. Advertising is not an effective way to increase the amount of work in the economy.

4. Advertising can be a barrier to new companies entering the industry.

Monopolistic competition market can be defined as a market where there are many producers that produce the same goods but differ in style (differentiated product). Companies in industries with monopolistic competition try to gain market power by differentiating or differentiating their creation products, for example by creating innovations to make them look more selling or by creating the identity or characteristics of their products in the minds of consumers through advertisements. However, the use of these advertisements raises the good and the bad. Thus, to avoid the vices of advertising it is necessary to maximize the positive effects of advertising including through (1) Ads must provide true and honest information about the product being promoted. (2) Required for making regulations aimed at supervising companies in making advertisements. Advertising activities must be regulated in such a way that they do not become obstacles for new companies to enter the market.