Question

Poland Spring, Dasani and Aquafina who together produce 90% of all the bottled water consumed in the US, each spend well over $300 million a year on television advertising campaigns, promoting their water brands. If one firm is advertising its brands heavily, the others must also advertise to defend their market shares. Would these firms welcome congressional legislation which restricted the amount that any one firm could spend on advertising to $1 million yearly, and thereby allowed them all to reduce their costs without fear of losing ground to each other? Explain

Answer 1

Why should they be concerned with costs? It is maximizing profit they are interested. Now if one of the competitors decides to reduce advertising revenue, great, it means more market share for the other players, and more profit.