Michael E. Porter

Discussion of advertising's roles--as informer, persuader, facilitator of
competition, deterrent to competition, villain or savior to the media--
and influence on social values has filled many volumes. In fact, a recent
review of the literature on just a few of these roles fills a whole book. ¹

Despite this attention to the effects of advertising, we have very
little in the way of an operational theory of the optimal level of adver-
tising by the firm. Dorfman and Steiner's 1954 paper presented a model
of the determination of optimal advertising in a simple world where a
monopolist faced a demand curve dependent on price and advertising
outlays. ² While this model is logically correct, it is nonoperational since
the parameters that underlie the advertising elasticity of demand are
unknown. Neither do we know the shape of the advertising cost func-
tion. Further, Dorfman and Steiner's model cannot easily be extended
to cover advertising competition among firms, which should affect the
revenue productivity of individual firm advertising outlays.

Other approaches to the optimal level of advertising of the firm have
sought to relate it to various aspects of the firm's environment. A body
of literature has developed on the relation between advertising and
seller concentration, represented by papers in this conference. ³ This
literature reflects the view that advertising levels will be affected by the
patterns of competition among firms as determined by concentration.
Other analyses have proposed that firms' advertising levels are affected
by the varying cost of supplying information to differently situated

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