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|
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Information or persuasion? |
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Assumptions about the nature and role of
knowledge. |
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World 1: knowledge free and perfect. |
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World 2: information costly. |
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World 3: open-ended possibilities. |
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|
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If knowledge is free and perfect, advertising
can have no informational role. |
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Assumptions of perfect competition. |
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The only role left for advertising is to
influence preferences. |
|
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|
|
|
|
|
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|
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States varied in restrictions on the advertising
of prescription eyeglasses (1963 and before). |
|
Prices in restrictive states higher by 25 to 100
per cent than in laissez-faire states. |
|
NC: $37.48; Texas and DC: $17.98. |
|
|
|
|
States varied in restrictions on the advertising
of prescription eyeglasses (1963 and before). |
|
Prices in restrictive states higher by 25 to 100
per cent than in laissez-faire states. |
|
NC: $37.48; Texas and DC: $17.98. |
|
|
|
|
States varied in restrictions on the advertising
of prescription eyeglasses (1963 and before). |
|
Prices in restrictive states higher by 25 to 100
per cent than in laissez-faire states. |
|
NC: $37.48; Texas and DC: $17.98. |
|
|
|
|
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If advertising is truthful, does it ever reduce
welfare? |
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If advertising changes tastes, which set of
tastes do we use to evaluate it? |
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If information is costly, can advertising
mislead consumers? |
|
|
|
|
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Three kinds of goods. |
|
Search goods. |
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Experience goods. |
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Credence goods. |
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Actual goods may have characteristics of two or
more types. |
|
|
|
|
|
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Search goods. |
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Qualities can be determined prior to purchase. |
|
Size, ripeness, color, etc. |
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Consumer can cheaply verify the truth of claims
about search characteristics. |
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Incentive to target ads
to the right consumers. |
|
Misleading advertisement of search
characteristics costly to advertiser. |
|
|
|
|
|
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Experience goods. |
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Qualities can be determined only after purchase. |
|
Direct information about quality harder to
verify (and thus less valuable to consumers). |
|
Non-specific claims of quality
or no quality claims at all. |
|
Indirect information. |
|
Advertising as a signal. |
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Advertising and reputational capital. |
|
|
|
|
|
|
Credence goods. |
|
Qualities can’t be determined even after
purchase. |
|
Medical care, car repair. |
|
Consumers uncertain about
both amount and quality. |
|
Producers have scope to sell “too much” or cheat
on quality. |
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But this has little to do
with advertising. |
|
Information costs and the
“optimal amount of fraud.” |
|
|
|
|
Do people have a complete list of all possible
products in their heads? |
|
Advertising as competition for scarce attention. |
|
The medium is the message: value of advertising
is the fact of advertising not the message. |
|
As number of products increase, will advertising
have to yell louder? |
|
Notes