Issues in Advertising: The Economics of Persuasion

By David G. Tuerck | Go to book overview

ADVERTISING AS
INFORMATION ONCE MORE

Phillip Nelson

The central proposition of an article I wrote in 1974 on advertising as information1 was that advertising was simply information--that all the major features of advertising behavior could be understood in terms of advertising's information function. The article has not produced an endless stream of reformed, ex-advertising haters. The Federal Trade Commission still operates inconsistently with that proposition. For example, a recent FTC ruling requires celebrity endorsers of a brand actually to use the brand.2 Evidently my case was not sufficiently convincing. It is the purpose of this paper to provide a more convincing case--theoretically and empirically--for the position that advertising is information.

Most people are willing to accept the proposition that advertising contains information about qualities, such as price or the way a dress looks, that a consumer can determine before his purchase of a brand-- in my terminology, search qualities. There is no similar agreement about advertising's information role for qualities, such as the taste of a brand of tuna fish, that a consumer discovers only by actually purchasing and trying out a brand--experience qualities, I call them. Most economists share my skepticism about the credibility of experience good advertising. If believed, advertisers would have an incentive to extol the virtues of their brand whether or not those virtues exist. As a result, the advertising message for experience qualities can contain little information that is believable.

Many economists, however, balk at my contention that, even for experience qualities, advertising contains information--namely, the fact that the brand does advertise. This information is useful, since the more heavily a brand advertises, the more likely it is to be a better buy. (I call this indirect information in contrast to the direct information that is contained in the advertising messages for search qualities.) A celebrity endorsement is simply an efficient way to get consumers to remember

____________________
1
Phillip Nelson, "Advertising as Information," Journal of Political Economy, vol. 81, no. 4 ( July/August 1974), pp. 729-754.
2
Federal Trade Commission, "Guides Concerning Use of Endorsements and Testimonials in Advertising," 16 CFR Part 255.

-133-

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Issues in Advertising: The Economics of Persuasion
Table of contents

Table of contents

  • Title Page iii
  • Major Contributors v
  • Contents ix
  • Introduction 1
  • Acknowledgments 11
  • Part One Issues in Regulation 13
  • Advertising and Legal Theory 15
  • Advertising Regulation and the Consumer Movement 27
  • Commentaries 45
  • Part Two Advertising and the Firm 69
  • Towards a Theory of the Economics of Advertising 71
  • Introduction 71
  • Optimal Advertising: An Intra-Industry Approach 91
  • Conclusion 111
  • Technical Appendix 112
  • Commentaries 115
  • Part Three Advertising as Information 131
  • Advertising as Information Once More 133
  • Appendix A: Derivation of the Relationship Between a and P 156
  • Appendix B: Data Sources 158
  • Advertising, Information, and Product Differentiation 184
  • Commentaries 193
  • Four Part Advertising, Concentration, and Profits 215
  • Advertising Intensity and Industrial Concentration- an Empirical Inquiry, 1947-1967 217
  • Conclusions 249
  • Advertising and Oligopoly: Correlations in Search of Understanding 253
  • Appendix A 262
  • Appendix B 263
  • Commentaries 267
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