Economics of Advertising

Santosh K. Patra,
MICA, Ahmedabad

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References (The instructor has not
mentioned Citations as this is only for class

Vulnerability for others is business

for us
Why advertising takes place?
Factors influence the amount of activity?

Beneficial or harmful economic force?

How much resource for advertising?

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Why does advertising take place?

Depends upon the market structure
Firms that operate in perfectly competitive
markets don't need to compete actively to stroke
up demand for their own product
In theory none of them have any influence over
the market

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 Monopolists also have relatively little to gain

from expanding resources on advertising
Oligopoly market structures are strongly
motivated to advertise
Advertising or price competition- is a particular
feature of oligopolistic market structure

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Are firms in control of their own

market?
Some economists- firms use advertising to
control of their own market
Firms are exposed to and threatened by the
unpredictability of future events invest on adv.

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 Manipulate market demands and guard against

sudden unexpected shifts in public tests
For some consumers appear to be the haples
victims of corporations
More on bearing on brands than products

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Informative vs. Persuasive

Advertising
Inform consumers
Influence consumers by altering their tastes or
preferences
Persuasive - is more questionable in terms of its
impact on consumer welfare

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mentioned Citations as this is only for class

Advertising a barrier to market entry

To put up a barrier to market entry (recent Google
adv.)
Is a means of imposing high set up costs

Is a feature of oligopoly market structure?

Can protect the profitability in long run by creating
barriers to prevent entry
Method- keeping out new entrants is 'brand
proliferation'
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Advertising and the performance of

the economy
Advertising has tended to grow as a proportion
of national economy
Advertising stimulates the level of consumption
with high income per capita
Advertising is a waste of resources that can only
afforded by rich countries

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The firms advertising decisions

Amount of advertisement depends on what it
believes that investment can achieve
What is the expectation in return for the
expenditure on advertising?
How to measure the effectiveness of
advertising?
Perception vs. Sales?
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References (The instructor has not
mentioned Citations as this is only for class