AB Inbev/Budweiser and Miller/Coors, together with their subsidiary brands and f
ID: 1104955 • Letter: A
Question
AB Inbev/Budweiser and Miller/Coors, together with their subsidiary brands and foreign corporate partner brands produce 80% of all beer consumed in the US. Each spends well over $600 million a year on television advertising campaigns, (not to mention spending in other media), promoting their beer brands. Do you think these firms would welcome congressional legislation which restricted the amount that any one firm could spend on advertising to $10 million yearly, and thereby allowed them all to reduce their costs dramatically without fear of losing ground to each other? Explain your answer.
Explanation / Answer
Firms usually advertise in order to promote its product and to have increased sales or sometimes the objective is to maximize the revenue or maximize the sales. To this end Advertising becomes extremely essential especially in markets where there are many other firms that are also advertising their products.
Insuch a competitive environment advertising provides a source of leadership where by some firms that advertise more than the other firms and can take a lead and dictates terms.
In this case both the firms were spending quite heavily on advertisement and hence it must be true that other companies in the market were also advertising heavily. Now if the firm is not allowed to spend more than 10 million dollars on advertising the legislation would not be welcome because this much amount of money can be spent by any other firms. Such legislation would dethrone the leadership title and the market power that the firm has and so it will not be able to dictate terms. Therefore the legislation would not be welcomed