There are three very contentious questions in the economics of advertising. First, Is advertising a form of information or misinformation, or, more precisely, What are the conditions under which advertising will contain information or misinformation? Second, Is the correct amount of advertising supplied by the market? And, finally, Is advertising a barrier to entry that increases monopoly?
Because the papers in this part refer mainly to the first question, I shall concentrate my remarks on it. I shall also direct most of my remarks to Nelson's paper because I disagree with it. I find Rosen's paper to be excellent within the narrow confines that he sets for it. However, I think that these confines are much too narrow and beg some of the important questions.
Both Nelson and Rosen discuss advertising as information. They dismiss the possibility that advertising might transmit misinformation, by suggesting that consumers are able to verify such information fairly cheaply or that, if unable to do so, will disregard the information as coming from a suspect source. It is, consequently, not surprising that both papers conclude that social welfare is improved by the existence of advertising. This way of thinking seems to go against the grain of most people who are not economists. I find it puzzling that economists exposed to TV--perhaps some of them do not watch it--should claim that there is no such thing as misleading advertising.
My own casual viewing suggests to me that, at least on television and perhaps in other media, the amount of misleading advertising is tremendous, although, of course, there is a great deal of informative advertising as well. If survival of business practices over a long period of time is any indication of the profitability of these practices, we must accept the position that at least some misleading advertising pays. And this is true for firms that have long been established as well as for