Question

Professional organizations (for example, the American Medical Association and the American Bar Association) have been active advocates for regulation to restrict the right of professionals to advertise. Describe what economic incentives might exist for existing professionals to restrict advertising. (hint: consider oligopoly market)

Answer 1

It is seen that in oligopoly, there exists non price competition like advertising. Cut throat competition in advertising and other non price barriers are important in oligopoly. A similar thing is seen the above example of professionals. When advertising is being introduced, the benefits and prices of various services provided by professionals would be advertised upon. This would lead to competition. Competition means that the prices and the quality is services would be adjusted according to the competitor. This would in turn reduce the prices professionals get for their services and hence their profits would reduce.

So this is the reason why professional organisations want to restrict the right to advertise for professionals.

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