The economic analysis of advertising
TLDR
A comprehensive survey of the economic analysis of advertising can be found in this article, with a focus on positive and normative theories of monopoly advertising, price and non-price advertising, theories of advertising and product quality, and theories that explore the potential role for advertising in deterring entry.Abstract:
This chapter offers a comprehensive survey of the economic analysis of advertising. A first objective is to organize the literature in a manner that clarifies what is known. A second objective is to clarify how this knowledge has been obtained. The chapter begins with a discussion of the key initial writings that are associated with the persuasive, informative and complementary views of advertising. Next, work that characterizes empirical regularities between advertising and other variables is considered. Much of this work is conducted at the inter-industry level but important industry studies are also discussed. The chapter then offers several sections that summarize formal economic theories of advertising. In particular, respective sections are devoted to positive and normative theories of monopoly advertising, theories of price and non-price advertising, theories of advertising and product quality, and theories that explore the potential role for advertising in deterring entry. At this point, the chapter considers the empirical support for the formal economic theories of advertising. A summary is provided of empirical work that evaluates the predictions of recent theories of advertising, including work that specifies and estimates explicitly structural models of firm and consumer conduct. This work is characterized by the use of industry (or brand) and even household-level data. The chapter then considers work on endogenous and exogenous sunk cost industries. At a methodological level, this work is integrative in nature: it develops new theory that delivers a few robust predictions, and it then explores the empirical relevance of these predictions at both inter-industry and industry levels. Finally, the chapter considers new directions and other topics. Here, recent work on advertising and media markets is discussed, and research on behavioral economics and neuroeconomics is also featured. A final section offers some concluding thoughts.read more
Citations
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Journal ArticleDOI
A joint dynamic pricing and advertising model of perishable products
TL;DR: By solving the dynamic optimization problem on the basis of Pontryagin’s maximum principle, the analytical solutions of the optimal joint dynamic pricing and advertising policy are obtained.
Journal ArticleDOI
Signalling and entry deterrence: a multidimensional analysis
TL;DR: In this paper, the authors consider whether a privately informed incumbent can use limit pricing and upward distortions in advertising to deter profitable entry and show that profitable entry is not deterred when the incumbent is privately informed only about its cost type and its patience level.
The Rising Cost of Consumer Attention: Why You Should Care, and What You Can Do about It
TL;DR: In this article, the authors propose an Attention contingent advertising strategy, a framework to match the most effective approach to the quality of attention contingently available as the value of attention rises.
Posted ContentDOI
Exclusive vs Overlapping Viewers in Media Markets
Attila Ambrus,Markus Reisinger +1 more
TL;DR: In this paper, the authors investigate competition for advertisers in media markets when viewers can subscribe to multiple channels, and show that the strategic incentives of firms in this setting are dierent than those in former models of media markets.
Posted Content
A Simple Theory of Advertising as a Good
Gary S. Becker,Kevin M. Murphy +1 more
TL;DR: In this article, the authors use the theory of advertising to evaluate the effects of advertising from a welfare perspective, and show that whether there is excessive or too little advertising depends on several variables: the effects on consumer utility, the degree of competition in the market for advertised goods, the induced changes in prices and outputs of advertised goods and whether advertising is sold to consumers.
References
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Book
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TL;DR: The Theory of Industrial Organization as discussed by the authors is the first primary text to treat the new industrial organization at the advanced-undergraduate and graduate level Rigorously analytical and filled with exercises coded to indicate level of difficulty, it provides a unified and modern treatment of the field with accessible models that are simplified to highlight robust economic ideas.
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A New Approach to Consumer Theory
TL;DR: In this article, the authors extend activity analysis into consumption theory and assume that goods possess, or give rise to, multiple characteristics in fixed proportions and that it is these characteristics, not goods themselves, on which the consumer's preferences are exercised.
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Monopolistic competition and optimum product diversity
Avinash Dixit,Joseph E. Stiglitz +1 more
TL;DR: In this article, Pettengill tests whether there is an excessive number of firms in a monopolistically competitive equilibrium by a device of considerable expository merit, and redistributes the resources thus released equally over the remaining firms in the sector, to see if welfare can be improved.
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Information and Consumer Behavior
TL;DR: In this article, the authors argue that consumers lack full information about the prices of goods, but their information is probably poorer about the quality variation of products simply because the latter information is more difficult to obtain.