Advertising and Welfare

Avinash Dixit and Victor Norman

Bell Journal of Economics, 1978, vol. 9, issue 1, 1-17

Abstract: This paper applies conventional welfare-theoretic methods to study advertising which changes consumer tastes. In a wide range of empirically plausible circumstances, private profitability is seen to be necessary but not sufficient for the social desirability of a small amount of advertising. The market equilibrium level of such advertising is shown to be socially excessive, even when postadvertising tastes are used as the standard for welfare judgments and the monopoly profits resulting from the advertising are included in welfare. Settings of monopoly, oligopoly, and monopolistic competition are examined, and the contention that advertising is excessive is found to be strengthened at each stage.

Date: 1978
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Working Paper: ADVERTISING AND WELFARE (1976)
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