Search Costs, Advertising and Welfare

Advertising and selling costs, which are essential features of the product markets under monopolistic competition, have significant implications for welfare economics34. Three basic mechanisms, through which advertising affects welfare have been identified: (a)the demand curve for the firm, which is altered due to the changes in the consumer preferences,(b)the cost at which the product is made available to the consumer, and(c)the strategies of rival firms in the market and their effect on the nature of the demand curve for a firm.