Six Models of Advertising Welfare

Dan Usher

Working Paper from Economics Department, Queen's University

Abstract: The incentive to advertise is a consequence of monopoly power, for there is nothing to gain from advertising by a firm that can sell its entire output at an invariant market price. Advertising is expenditure by a firm to increase the elasticity of demand for its product or to shift the demand curve to the right. This article examines six possible reasons for advertising. It may: 1) provide information about goods and services; 2) enhance a psychic quality of the advertised good; 3) reduce the psychic quality of goods that substitute for the advertised good; 4) persuade people to act against their true interests; 5) finance public goods; 6) provide a signal of quality. Though all six effects have been recognized in the literature, they have not been examined together. Focus on one exclusively can convey a misleading picture of the social consequences of advertising and suggest inappropriate policy prescriptions.

Keywords: economic models; advertising; monopolies (search for similar items in EconPapers)
Pages: 29 pages
Date: 1989
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:756

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