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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Competition and Competition Policy in a Data-Driven Economy
TL;DR: In this paper, the question emerges whether a firm's data "treasure" can be the source of competitive advantage that make it impossible or even impossible for other firms to catch up in the foresee able future.
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Promotions and product pricing: Parsimony versus Veblenesque demand
James E. McClure,Erdoğan Kumcu +1 more
TL;DR: In this article, the authors formalize the relationship between the optimal price/quantity combination and the thoroughness of product promotions for a monopolistic firm, and show that iterating toward the profit-maximizing thoroughness, gives rise to a backward bending price andquantity locus.
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Misleading advertising and minimum quality standards
TL;DR: The welfare effect of a decrease in misinformation crucially depends on the existing amount of misinformation; moreover, a more stringent MQS either improves or deteriorates welfare.
References
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Book
The Theory of Industrial Organization
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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Avinash Dixit,Joseph E. Stiglitz +1 more
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