Economics Dictionary of ArgumentsHome
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| Advertising: In economics, advertising is the strategic communication used by firms to inform, persuade, or remind consumers about products or services. It aims to influence demand, differentiate products, and increase market share, often impacting consumer preferences and price elasticity. Advertising is considered a key factor in shaping competition and market behavior. See also Market, Competition._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Economic Theories on Advertising - Dictionary of Arguments
Henderson I 74 Advertising/Economic theories/Henderson/Globerman: Some economists and many consumer advocates criticize advertising, arguing that much of it is wasteful. The pharmaceutical industry in particular has received substantial criticism for "wasting" money on advertising and then charging higher prices for their drug products to recoup their advertising costs.* A stream of studies in the 1960s and 1970s focused on whether advertising was designed primarily to "inform" potential buyers about products' objective features and advantages or it was primarily aimed at making emotional appeals to consumers' vanities and aspirations.** Henderson I 75 Information/propaganda: The underlying premise was that if advertising were primarily lifestyle oriented rather than informative, that would support the criticisms of advertising. That is, advertising that did not provide factual information about a product was unlikely to inform consumers about the product's features, price, and other attributes and would therefore, even if profitable, be socially wasteful. Information/quality/UCLA School: The UCLA School made an important contribution to the debate surrounding advertising by highlighting the role that advertising plays in assuring consumers about the quality of products when it is costly to obtain information about the quality and reliability of products. Klein/Leffler: Indeed, Klein and Leffler (2009)(3) argue that the debate about whether advertising is primarily informative or aspirational is, at best, beside the point. In their view, the primary role of advertising is to build a product's brand name. In this regard, advertising can be seen as a stream of sunk cost investments that will pay off for a company only if that company stays in business long enough and can charge a suffciently high price to recapture those investments. To stay in business for a long time, the company needs to deliver products whose quality is commensurate with the prices charged. Quality: A company seeking to cut corners and cheat on quality runs the risk of severely damaging its brand name. That would mean that it may not recapture the outlays it has made on advertising and promotion over the years. In short, firms selling more heavily advertised and often higher priced products use advertising to signal to consumers that they will provide reliable products and engage in honest dealing lest they depreciate the brand names they have spent so much money developing. * A review and critical evaluation of this argument is provided in Philipson (2016)(1). ** See Santilli (1983)(2) for an overview of the debate about the nature of advertising. 1. Philipson, Tomas (2016). Unique Aspects of Patents for Medical Innovation: Recent Research Developments. In Steven Globerman (ed.), Intellectual Property Rights and the Promotion of Biologics, Medical Devices and Trade in Pharmaceuticals (The Fraser Institute): 73-91. 2. Santilli, Paul (1983). The Informative and Persuasive Functions of Advertising: A Moral Appraisal. Journal of Business Ethics 2: 27-33. 3. Klein, Benjamin, and Keith Leffler (2009). The Role of Market Forces in Assuring Contractual Performance. Journal of Political Economy 89, 41: 615-641._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Economic Theories Henderson I David R. Henderson Steven Globerman The Essential UCLA School of Economics Vancouver: Fraser Institute. 2019 |
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