holding prices constant. Only after changes in demand are expected to
persist will firms adjust their entire list of prices.
There are important exceptions to this behaviour, however, especially for
firms that rely to a large extent on their online sales. For example, airlines
have websites on which they post their prices, which can change
frequently, even hourly. And for retailers who use the Internet or social
networking to contact their customers, “flash sales” are now common,
whereby the store advertises special sale prices that last for one day or
even one hour.
Firms Engage in Non-Price Competition
Firms in imperfect competition behave in three ways not observed under
either perfect competition or monopoly.
- Advertising
First, many firms spend large sums of money on advertising. They do so
in an attempt both to shift the demand curve for the industry’s products
and to attract customers from competing firms. A firm in a perfectly
competitive market would not engage in advertising because the firm
faces a perfectly elastic (horizontal) demand curve at the market price, so
advertising would involve costs but would not increase the firm’s
revenues. A monopolist has no competitors in the industry and so will
not advertise to attract customers away from other brands. However, in
some cases a monopolist will still advertise in an attempt to convince