Becker and Murphy on advertising

by John Quiggin on May 12, 2006

During the discussion following the death of JK Galbraith, the issue of advertising came up. In the Affluent Society Galbraith dismissed the idea that advertising is informative, and argued instead that it was used to manufacture demand for goods and services people would otherwise not want. The NYT obit suggested that Gary Becker and George Stigler had disproved this, a proposition that attracted some attention, mainly focusing on the work of Becker and Murphy.

Although Becker and Murphy don’t present it this way, their model actually supports Galbraith in most respects.

For a start, the idea that advertising could be informative is excluded by assumption. In the standard neoclassical model, adopted here consumers are supposed to know their own tastes (and the processes by which tastes may change over time) and to be fully informed.

Advertising is simply media content that is complementary with consumption of the goods advertised: this just says in economic terminology that people who consume the ads are more likely to consume the products or, even more simply, that ads sell stuff.

A possibly helpful analogy is that of salted nuts or pretzels on the counter in a bar. For obvious reasons, salted nuts are complementary with beer. And just as it makes sense for bar owners to make nuts available freely or cheaply, it makes sense for people selling a good to offer ads.

What about consumers? An obvious case of the Becker-Murphy story arises when the ads tell a story that enhances the subjective value of consuming the good in question. A pair of shoes that make you feel like a basketball star is better (for the target market) than a pair of shoes that just covers your feet. Becker and Murphy pay a fair bit of attention to this case, and so do people who comment on them.

But this isn’t the only way that ads can be complementary. Ads that make you discontented with your existing possessions, or reduce the subjective value of competing products work just as well.

The economic model presented by Becker and Stigler provides a simple and elegant way of distinguishing the two. If advertising is a good, which enhances the package of ad+product, consumers will be willing to pay for it. If advertising is a bad, consumers will have to be paid (or forced) to consume it.

An immediate consequence is that most of what we think of as advertising is a bad. We watch TV ads not because we like them, but because we are paid with the programs they accompany. This is the point made by the TV executive who said we were breaking the contract if we watched the programs but not the ads (he did say we could take a break to go to the toilet, IIRC).

Given the public good properties of financing broadcast TV, it’s possible to make a second-best argument that this social arrangement improves welfare on balance (I still need to work through this one, but for me at least, the price is too high, and I hardly ever watch ad-inclusive TV).

Billboards, though, are an unmitigated bad. If we wanted to look at them, we would pay to go and see them as with movies and concerts. And given that we are selling our attention to advertisers on TV and radio, those who force billboards into our field of view are taking that attention without payment, just like telemarketers making collect calls.

An immediate policy conclusion, the exact obverse of the one about TV viewers watching ads, is that users of billboard advertising should be required to pay everyone who goes past. Given the transactions costs of implementing this, they should be taxed at rates comparable to the advertising charges of TV stations.

{ 58 comments }

1

Classic Liberal 05.12.06 at 5:14 am

You have got to be kidding me. Imagine taking a road trip with no billboards whatsoever. Now you have no information at all at what amenities are at each exit, no idea what restaurants, etc. are available. Since billboards are an “unmitigated bad”, you must be obviously better off without such knowledge, correct?

Please put a teensy bit more thought into your posts.

2

bryan 05.12.06 at 5:35 am

well ads are informative at the basic level of informing you that a product exists. This is more likely to be actually informative to you in such advertising markets as that existing in the online world, as opposed in the mass media when it can be assumed that in order to afford the mass media exposure one must already be well known enough to have the basic informative value of the advertisement negated for all but a few consumers.

3

john m. 05.12.06 at 5:53 am

The primary purpose of virtually all consumer goods advertising is to create demand for specific products (and/or services) and that the message being conveyed by an ad (the information) is very carefully analysed & constructed to support this. It may be helpful to look at branding – I may have decided I want a beer but the primary purpose of advertising is to convince me which beer to choose, invariably focusing on notions of image etc. So the base information of any ad is that a particular product exists but the purpose of the ad is to convince its target audience to buy it. As for being forced to watch TV ads, it is interesting that often what people mean when they say “I hate ads” is “I hate watching ads for products in which I have no interest or ads that do not aesthetically appeal to me”. Ads are very carefully targeted at particular demographics so if you dislike an ad the first question you should ask is “is this ad targeted at me?” If yes, the makers have failed, if no, then they just don’t care.

4

Tim Worstall 05.12.06 at 7:04 am

“For a start, the idea that advertising could be informative is excluded by assumption. In the standard neoclassical model, adopted here consumers are supposed to know their own tastes (and the processes by which tastes may change over time) and to be fully informed.”

Excellent. We start by assuming that consumers know everything (something which, John, you do not take to be a valid assumption in all and every matter) and thus prove that giving them information must be a bad…as they already know.

One question in this model. How do they already know? Could advertising be one of the methods by which people gather the information to become fully informed?

With rather less snark I’d say that 2 minutes viewing the world outside the window shows that some advertising is indeed “Galbraithian” in that it attempts to create desires which can only be satisfied by the new $500 plimsoll.

It also seems pretty obvious that some portion of advertising is indeed informative. A flyer dropped through my letter box a couple of weeks ago announcing a new Argentinian restaurant in town. 21 different course of meat (yes, courses) as a rodizio for 23 euros per head. We went, it was great.

You might argue that that ad created my desire to gorge on meat, created a desire to eat in a restuarant rather than stay home and knit tofu…but I think I’d rather argue that it was useful extra information: I now have more choices about where I can consume excessive calories.

If they’d advertised on a billboard it would still have been informative.

Perhaps the problem might be that attempting to push all advertising into one or other class, good or bad, is an error? That some could be the manipulation or creation of desires and that some could be informative?

Which then leads to the question of how do we do away with the “bad” and remain with only the “good”? Or perhaps that’s not possible? How would we do this without someone (almost certainly the State) censoring all ads?

5

Tom T. 05.12.06 at 7:05 am

It’s a bit ironic that this post appears directly above a post from Chris in which he is asking for informational assistance in choosing a consumer product. :-)

6

abb1 05.12.06 at 7:26 am

Commercial broadcasting has little or no public good properties, because the programs that accompany the adds are specifically chosen for that purpose; they are not likely to be a ‘public good’ kind of programs in any meaningful sense; if some of them are, it’s only by coincidence.

7

JR 05.12.06 at 7:46 am

john m is right. TV advertising is a “bad” because the advertiser is unable to target his audience and so large numbers of people who have no interest in the ad are forced to view it. When an advertiser is able to target the audience properly the advertising becomes a good.

The best example of this is the glossy magazine. A magazine like Elle or Glamour or (to a lesser extent) Car and Driver is almost entirely advertising. Without the advertising, these magazines would not sell.

8

SamChevre 05.12.06 at 8:18 am

Please–I like billboards.

I had the experience of driving I-40 10 hours home from college on breaks (In NC-TN). As part of a beautification project, the billboards on much of the interstate were taken down. It made the drive much harder, because that is the most boring road in the easter US; there is nothing to see. At least wiht the billboards, I could look for the letters of the alphabet in order so as to stay awake.

9

AA 05.12.06 at 8:46 am

Classic Liberal: please think before commenting.

10

Donald Johnson 05.12.06 at 9:01 am

I-40 from North Carolina to Tennessee is boring? You pass through the Appalachian Mountains and in Tennessee you then hit the Cumberland Mountains and after that there are a couple hundred miles of rolling hills. They gradually flatten out as you approach Memphis, but even the west Tennessee countryside is pretty. Which is the boring part? I suppose it depends on your taste in scenery.

Not that I like ten hour drives myself, but I’d rather look at greenery, mountains, and hills than a billboard telling me to see Rock City. (If those are still around.)

11

a different chris 05.12.06 at 9:15 am

>Now you have no information at all at what amenities are at each exit,

What country do you live in? If it’s not the US and you vist here, let me explain:

A box with a fork and knife means food
A box with a gas pump means gas (are you picky about the retailer>)
A box with a what looks like a flattened “H” with a stick figure on it is supposed to be a bed with a sleeper – I let you guess that one for fun.
A box with a towtruck means auto repair if your car’s behavior is giving you concern.

PS: I second DJ’s astonishment at somebody who can find billboards more appealing than a chunk of what may be the planet’s oldest ecosystem.

12

SamChevre 05.12.06 at 9:21 am

DJ,

No, NC–TN is not boring–the Cumberland plateau is home, and I will happily wander about in East Tennessee all day–but I-40 in the area is. Have you ever driven it? It’s routed and sited so that you can rarely see anything but the road ahead and the endless small trees that screen the road from the surrounding countryside. (It’s a huge contrast to I-81, which is sited so you can see the countryside from the road.)

13

a different chris 05.12.06 at 9:27 am

Heh, speaking of state-supplied informational signs, I thought of one that they don’t do: Adult Entertainment. I guess they could use the curvacious babe so common on semi-truck mudflaps.

But then that reminded me of something I always found drolly amusing, so I’m gonna bore you with it. Along a state road called Rt 22 is a notorious – well, that’s too strong a word, let’s call it very well known strip club called Climax I. It’s a very old road (some parts may be laid over the Forbes Trail, I’m not sure) and has plenty of roadside businesses. The state a few years ago did a big-time re-working.

And apparently, if a road project wipes out the main access to a business, the state has to provide signage re-directing, uh, clients.

It was a long project, so initally travellers were treated to large orange roadside PennDot signs helpfully reminding them of the nearby strip joint and how to get there, and then later they were replaced by lovely blue informational signs with “Climax I” in crisp, professional lettering.

At least they didn’t have to add any more detail.

14

a different chris 05.12.06 at 9:30 am

samchevre’s last post and mine crossed, so I withdraw the objection. I confess that I find much of mid-state Florida highways so ugly that they are actually improved for me by billboards.

And when the billboards are on fire, that’s even better!

15

Richard Bellamy 05.12.06 at 9:34 am

Took the ads
.
.
.
Off the TV
.
.
.
Now you pay
.
.
.
For all you see
.
.
.
Bermashave

16

Christopher M 05.12.06 at 9:37 am

Billboards, though, are an unmitigated bad. If we wanted to look at them, we would pay to go and see them as with movies and concerts.

Not if we only enjoy looking at them while driving. There are too many, for sure (especially in urban areas, where they really do clutter up the view) and lots of them are ugly, but I certainly wouldn’t always choose a drive without billboards over a drive with billboards. For some nostalgia value: http://www.billboardsofthepast.com

A box with a fork and knife means food

Not all of us are content with knowing that we’re headed toward “food.” White Castle or Wendy’s? Red Lobster or Cracker Barrel? Dammit these things are important.

17

Slocum 05.12.06 at 9:41 am

> Please—I like billboards.

Yep. Someday today’s billboards will be ‘Americana’:

http://www.highwayproject.org/

How did this sort of thing get to be art:

http://www.highwayproject.org/Pages/gallery_1_18.htm

but modern billboards are nothing but eyesores?

18

DC 05.12.06 at 9:49 am

“Given the public good properties of financing broadcast TV, it’s possible to make a second-best argument that this social arrangement improves welfare on balance”

But you’d also have to consider the anthropological and environmental effects of unnecessesarily (and manipulatively) consumptive ways of life.

19

Evan McElravy 05.12.06 at 9:52 am

You have got to be kidding me. Imagine taking a road trip with no billboards whatsoever. Now you have no information at all at what amenities are at each exit, no idea what restaurants, etc. are available. Since billboards are an “unmitigated bad”, you must be obviously better off without such knowledge, correct?

Billboards are banned on Ontario roads (though I think permitted in cities). The government puts up intermittent signs, small and discrete, with the names of various food, drink, gas, tourism, lodging, etc. amenities in the vicinity. Works well, so far as I can tell, even though the landscape of most of populated Ontario is not so pretty as to need preserving, really. Anyway, many billboards (in cities, most by far) are not for travel related services but for beer or bluejeans or personal injury attorneys. These people have plenty of available outlets for advertising. I feel a little dodgy on personal liberty grounds saying that property owners shouldn’t be allowed to erect advertising on their property, but not THAT dodgy. Anyway, your objection, I think, does not stand.

20

rgeorge 05.12.06 at 9:54 am

Here’s a link to an excellent book on this topic — Preference Pollution — based on the author’s extended research on ‘meta-preferences’ and how they are shaped by the market.

http://www.powells.com/biblio?isbn=0472089498

21

MattXIV 05.12.06 at 10:23 am

But this isn’t the only way that ads can be complementary. Ads that make you discontented with your existing possessions, or reduce the subjective value of competing products work just as well.”

The introduction of a superior alternative after you’ve already made a purchase always is going to make discontent with what you have. I loved my 17″ CRT monitor until I used some LCD monitors, at which point it became an eyestraining piece of trash.

It’s worth noting that advertising probably works via many different mechanisms. An add may create a demand that didn’t exist before because the audience didn’t know about the product, it provides a complementary experience, or attempt to undermine the complementary experience of a substitute. Simply saying that advertising creates an demand that would not exist without it doesn’t answer core question of why comsumers develop the demand, which is key to determining whether the development is good for the consumer or not.

22

MattXIV 05.12.06 at 10:35 am

Also, as someone who does a lot of driving in rural Wisconsin, I agree with the commenters who find billboards useful. The little blue signs for food, lodging, and gas are of limited use, since you don’t know what’s there until you are near the exit, and you have no basis for comparision with what’s further down the road, not to mention that they don’t list such ammenities as casinos, fireworks shops, adult book stores, and knife and tobacco outlets (all on I-39 N, if you’re looking). Further, they also serve as a forum for non-commericial speech. I-39 N has played host to a couple pro-life boards, some religious ones, and a particularly charming hand made one (both sign and structure) that calls for the removal of a couple local judges from office.

23

Kip 05.12.06 at 10:53 am

Yes, there seems to be a difference between an informative sign that tells you which and what kind of restaurants can be found at each exit and a billboard with a steaming hot, 40 foot McMuffin made from cosmetic fake food materials (Thank you Mr. Rogers for showing me the truth).

24

Slocum 05.12.06 at 11:15 am

Yes, there seems to be a difference between an informative sign that tells you which and what kind of restaurants can be found at each exit and a billboard with a steaming hot, 40 foot McMuffin made from cosmetic fake food materials (Thank you Mr. Rogers for showing me the truth).

If you’re a fan of chain restaurants and don’t want local, independent operations to be able to compete, then forbidding everything but a ‘tasteful’ little sign with nothing but the restaurant’s name is perfect. Everybody knows what McDonald’s offers, so they don’t really need a billboard, but what about, say, “Donaldson’s Roadhouse”? If “Donaldson’s” can’t advertise the kind of food they offer and the prices and maybe show you a picture of the food or the place, how many people are really going to take a chance and stop instead of playing it safe at McDonald’s?

25

Neel Krishnaswami 05.12.06 at 11:57 am

I think it’s really dubious to suggest that Becker and Murphy are in substantial agreement with Galbraith. Galbraith argued that large corporations use advertising to change people’s tastes, and that firms were able to fine-tune this well enough to consciously manage the demand for their goods. Becker and Murphy’s model assumes stable preferences — that is, they assume manipulation is impossible. Those two viewpoints fundamentally contradict each other.

Sure, both Galbraith and B&M agree about the existence of noninformative advertising (which the Times obit got wrong), but their interpretation of how it arises are utterly different.

26

MattXIV 05.12.06 at 12:45 pm

slocum – Actually, a lot of the small places along the interstate have billboards (they’s probably as many ‘boards for them as chains resturants in the areas I drive around) or signs on their property visible from the road that go beyond both “little” and “tasteful.” Images of food in advertisements are kind of different, since they appear to be capable of stimulating hunger, but the hunger isn’t always for a specified target, so the local resturants may actually be free-riders on the 40-ft tall Egg McMuffin. Personally, I find that food commericials on TV will stimulate my apetite if I haven’t ate recently, but I rarely end up buying the actual product advertised, or even something similar.

27

Steve Reuland 05.12.06 at 1:09 pm

classical liberal writes:

You have got to be kidding me. Imagine taking a road trip with no billboards whatsoever. Now you have no information at all at what amenities are at each exit, no idea what restaurants, etc. are available.

I don’t know about other states, but in South Carolina, every exit that has amenities has a highway sign that says “gas exit” with a list of gas stations, or “food exit” with list of restaurants, or “lodging exit”… you get the idea.

South Carolina has more billboards than anyone, yet all of them put together don’t convey as much useful information as these cheap road signs paid for with taxes.

28

Walt 05.12.06 at 2:59 pm

Neel: If you take a) Galbraith’s theory, and add b) that people recognize that when they watch TV they will see ads that might make them want to buy products they don’t currently want to buy, but they go ahead and watch TV anyway, then what substantial practical difference is there between Galbraith and Becker/Murphy?

29

r4d20 05.12.06 at 3:23 pm

As with most consumer/anti-consumer discussions there seems to be a fundamental disconnect between those who think consumers ultimately have free will and those who ultimately see them as programable automatons – and my biased language probably reveals which side I am on :).

What scares me is that the anti-consumerists are, literally, ressurecting the arguments used by the medieval catholic church to justify the persecution of heretics and other forms of intellectual repression. Its not a matter of having a nefarious “agenda” but if we set the precedent that people need to be protected from even exposure to ‘anti-social’ ideas then all sorts of other people are going to try and apply the same logic to their pet peeve issues.

If you want to talk about ‘manufacturing’ wants. needs, and desires lets cut the horsehit and start with the biggest threat of all – midle eastern monotheistic religions. When it comes to manufacturing needs you cannot top ‘original sin’. Give me an argument for protecting people from BK billboards and I’ll give you a BETTER one for protecting kids from the Bible and Koran. We opened this door before and it was hard enough to close. Do we really want to pen this again and re-learn the same lessons – that human fallibility always DOOMS attempts to protect people from their own weaknessess.

30

abb1 05.12.06 at 3:31 pm

Who said anything about protecting anybody, let alone persecution of heretics?

31

engels 05.12.06 at 4:11 pm

I have free will. I just don’t want to see so many fucking adverts. So bite me, “libertarians”.

32

a different chris 05.12.06 at 4:27 pm

>is that the anti-consumerists are, literally, ressurecting the arguments (blah, blah).

Yeah I just heard news that an long-missing Gregorian chant manuscript has been located. It apparently had a reference to the good victuals and ale at a nearby roadside pub and got quickly deep-sixed by the Vatican. Coming to a History Channel special near you.

Shorter different chris: Give me a freaking break, dude.

33

Tim Sullivan 05.12.06 at 4:42 pm

Another side of the billboard/government sign debate is the information conveyed by whether the sign is a commercial or municipal.

I suspect that it has to do with an arbitrary level of trust in one’s perceptions, but I am much more comfortable trusting the gov’t signs than the commercial ones.

34

abb1 05.13.06 at 3:22 am

I suspect that it has to do with an arbitrary level of trust in one’s perceptions…

No, it has to do with trusting independent source of information rather than biased one. Perfectly rational idea.

35

maidhc 05.13.06 at 3:31 am

To answer #24, I can think of an exact counter-example.

For those of you who don’t live in the US, businesses or organizations can pay to have a portion of the roadside cleaned of trash and they will put up a little sign saying something like “Trash removal sponsored by Bay Area Pagan Assemblies” (or whatever, but that was a real example).

We were going up I-5 through central Oregon, and getting a bit peckish, but we don’t like to eat at chains. Then we saw a sign that said the trash was picked up by Mom’s Diner. Our immediate reponse was “Oh cool! We have to eat at Mom’s Diner”. And it turned out to be everything that the name implied.

Another place we were drawn to by advertising on that long drive from San Francisco to Seattle that we do quite often is Graciela’s in the Sacramento Valley. It’s become a favourite stopping place.

Central Oregon and the Sacramento Valley are not places where it is easy to find edible food, so in these cases I feel that advertising has benefited us by helping us to find meals that we like.

On the other hand, there is advertising that I find so obnoxious that I go out of my way to avoid the product. For example, I have avoided McDonald’s for the last 24 years and I have never set foot in a Starbuck’s.

36

goatchowder 05.13.06 at 3:36 am

I just came from a Long Now presentation by economist Chris Anderson (editor of Wired Magazine), in which he argued that the “goodness” or “badness” of advertising from a social standpoint was identical to its goodness or badness from an ROI standpoint: how well it is targeted.

I think that’s what you might be on after with all this billboard stuff. A well-targeted ad is basically a helpful recommendation, a poorly-targeted ad is a useless interruption.

V1@gr@! C1@l1s!

Not to say that I buy that argument at all, but I at least found it a helpful recommendation.

37

abb1 05.13.06 at 5:30 am

A well-targeted ad is basically a helpful recommendation…

I don’t think so: no matter how well it’s targeted it’s still a sales pitch; it’ll exaggerate some and suppress some other characteristics of the product or service, just by its nature.

Certainly you’d much prefer an objective report comparing new and existing products, report produced by some independent consumer organization. This organization could be financed by the industry, by a special tax or something. It’s not rocket science.

38

John Quiggin 05.13.06 at 6:07 am

“A well-targeted ad is basically a helpful recommendation…”

This is where the Becker-Murphy analysis is strong. If the ad is really helpful, there’s no need to bribe you (with a TV program) to watch it.

39

abb1 05.13.06 at 7:10 am

If the ad is really helpful, there’s no need to bribe you (with a TV program) to watch it.

So, what would be an example of such really helpful ad, provided that independent info (Consumer Reports, for example) is readily available?

40

Pablo Stafforini 05.13.06 at 9:53 am

TV advertising is a “bad” because the advertiser is unable to target his audience and so large numbers of people who have no interest in the ad are forced to view it. When an advertiser is able to target the audience properly the advertising becomes a good.

Users of Firefox’s highly popular adblock extension attest to the fallaciousness of this reasoning. Although Internet advertisements are much better targeted than TV ads, they are avoided by users who have the skills and the inclination to tweak their browsers.

41

serial catowner 05.13.06 at 12:16 pm

Apparently nobody remembers this, or bothered to read about it, so let’s go back to the original reason for advertising, c. 1920s- when advertising creates demand, the economies of scale can bring down the price.

That’s the pitch the admen made to the companies and the public.

Sears Roebuck had proved this 30 years previously. Their mail-order catalogue reached such a huge market that they could offer mass-produced goods at prices so low that local retailers bought from Sears at the catalogue price and resold at a profit.

So, fast-forward to the present day, when advertising is over 10% of the cost of drugs your doctor prescribes for you. Think about it- you buy a product you don’t want, because someone more informed than yourself has told you to.

Or- bottom line- otherwise educated posters actually demanding more billboards.

Put down the remote and back slowly away from the commercial, gentlemen.

42

roger 05.13.06 at 12:23 pm

Might as well throw into this mix what Galbraith says about advertising in the Affluent Society. The interest, to me, is that Galbraith does not first develop a model that makes presumptions about the rationality and perfect information status of economic agents. However, it might be helpful, if we are to pretend that the economy is filled to the brim with rational agents having full and perfect information, to investigate their own sense making patterns about what they are doing, no?

“The even more direct link between production and wants is provided by the institutions of modern advertising and salesmanship. These cannot be reconciled with the notion of independently determined desires, for their central function is to create desires—to bring into being wants that previously did not exist.4 This is accomplished by the producer of the goods or at his behest. A broad empirical relationship exists between what is spent on production of consumer goods and what is spent in synthesizing the desires for that production. A new consumer product must be introduced with a suitable advertising campaign to arouse an interest in it. The path for an expansion of output must be paved by a suitable expansion in the advertising budget. Outlays for the manufacturing of a product are not more important in the strategy of modern business enterprise than outlays for the manufacturing of demand for the product. None of this is novel. All would be regarded as elementary by the most retarded student in the nation’s most primitive school of business administration. The cost of this want formation is formidable. In 1987, total advertising expenditure—though, as noted, not all of it may be assigned to the synthesis of wants—amounted to approximately one hundred and ten billion dollars. The increase in previous years was by an estimated six billion dollars a year. Obviously, such outlays must be integrated with the theory of consumer demand. They are too big to be ignored.”

Footnote 4 says:

“Advertising is not a simple phenomenon. It is also important in competitive strategy and want creation is, ordinarily, a complementary result of efforts to shift the demand curve of the individual firm at the expense of others or (less importantly, I think) to change its shape by increasing the degree of product differentiation. Some of the failure of economists to identify advertising with want creation may be attributed to the undue attention that its use in purely competitive strategy has attracted. It should be noted, however, that the competitive manipulation of consumer desire is only possible, at least on any appreciable scale, when such need is not strongly felt.”

43

serial catowner 05.13.06 at 12:24 pm

And BTW- vas you dar, Sharlie? Back in the heyday of the billboard, you packed a lunch, mounted a compass on your car, and carried spare parts and fuel because…..(drumroll) billboards don’t always tell the truth!

That’s why the Golden Arches thing worked- anywhere in America, the Golden Arches meant you could find food that was edible. That’s how bad it was in the old days- MacDonalds was an improvement.

Honestly, what a bunch of weenies. You can’t even figure out how to drive on a freeway from one town to the next without a billboard? I guess we won’t be heading for Mars any time soon.

44

Donald Johnson 05.13.06 at 1:18 pm

Samchevre–

That’s not how I remember I-40, but it’s been several years since I drove on it. I remember being able to see quite a bit of scenery–you need a lot of trees to block out hills, you know. But maybe you’re remembering stretches that I don’t recall– it’s been a number of years.

45

Neel Krishnaswami 05.13.06 at 6:38 pm

abb1: two examples of desirable forms of advertising are the sports pages of your newspaper and movie reviews. Both are valuable enough (at least with good sportswriters and movie critics) that people will seek them out and pay for the privilege of reading them. And yet they are also advertisements for pro sports leagues and the movies of film studios.

46

roger 05.13.06 at 9:53 pm

Neel, that seems to me an illicit extension of the concept advertisment. I would take it that Galbraith and Becker would exclude those recommendations and pronouncements that weren’t paid for. Otherwise, the whole issue becomes a conceptual swamp.

47

Neel Krishnaswami 05.13.06 at 10:30 pm

Setting aside Galbraith, whose analysis I can’t speak with confidence about, that’s definitely not the case for the Becker-Murphy analysis.

In their model, an advertisement is any product that is a complement to another product. A good is a complement to another one if demand for it rises with demand for the other — think of hot dogs and buns; the demand for buns rises with the demand for hot dogs.

The innovation in the Becker-Murphy analysis is that they recognized that a bad — a product you must be paid to consume — can be a complement to a good. So consuming TV ads can increase your demand for a product. But because the TV ads are bads, they have to be bundled with something you do value (eg, TV programs) in order to persuade you to consume them.

However, this does not preclude the existence of advertisements that are intrinsically valuable. Film studios certainly treat screenings for critics as part of their advertising campaigns, but I think it’s reasonable to think of movie reviews as valuable advertising. (My life would be poorer without Pauline Kael’s essays, or even Roger Ebert, for example.)

48

engels 05.13.06 at 10:52 pm

In their model, an advertisement is any product that is a complement to another product. A good is a complement to another one if demand for it rises with demand for the other—think of hot dogs and buns; the demand for buns rises with the demand for hot dogs.

So, Neel, according to you a bun is an “advert” for a hot dog?

49

abb1 05.14.06 at 3:30 am

A review by independent critic is a form of advertisement?

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John Quiggin 05.14.06 at 3:47 am

Neel, I think you’re reinforcing my main point. The things we usually think of as ads are mostly bad; there are goods that fit the model, but aren’t what we think of as ads.

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abb1 05.14.06 at 4:17 am

This is absurd. If we don’t have the definition of “ad” and don’t agree on what consititutes an “ad” and what doesn’t not, then there’s no way to have a main point here or any point at all.

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joejoejoe 05.14.06 at 8:10 am

The most famous billboards I know of are the ‘South of the Border’ signs on Interstate 95 as you drive south on the Atlantic seaboard in the US. There are 200+ ‘South of the Border’ billboards strung out over hundreds of miles aimed mostly at tourists driving south to Florida. ‘Pedro’ is the mascot of ‘South of the Border’, a collection of cheesy shops, restaurants, fireworks shops, souvenir stores, and the “magnificent Sombrero – Eiffel Tower of the South”. In 1993 the Mexican Embassy asked that the mocking broken English of the billboards be removed. A few examples:

NO MONKEY BUSINESS Joost Yankee Panky! South of the Border
(upside down sign) Too Moch Tequila? South of the Border

These billboards had value when I was a kid as they distracted me from thinking “Are we there yet?” as we trekked to Florida from Connecticut in the family station wagon. But ‘South of the Border’ is filled with crap.

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Neel Krishnaswami 05.14.06 at 3:35 pm

John, I think you’re right — though I am certainly surprised by that fact. Maybe I’ve spent too long in software, where it’s easy and common to give away useful software as a promotion.

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r4d20 05.14.06 at 5:01 pm

“Think about it- you buy a product you don’t want, because someone more informed than yourself has told you to.”

People believe in God simply because they were raised too – you think that gives you a right to reprogram them or stop them from raising their children the same way?

It is not your job to protect people from their own weak minds.

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abb1 05.15.06 at 2:37 am

Neel, here, I found some definitions. Giving away software is a marketing activity; advertisement is different marketing activity.

It’s easy to become confused about these terms: advertising, marketing, promotion, public relations and publicity, and sales. The terms are often used interchangeably. However, they refer to different — but similar activities. Some basic definitions are provided below. A short example is also provided hopefully to help make the terms more clear to the reader.

One Definition of Advertising
Advertising is bringing a product (or service) to the attention of potential and current customers. Advertising is typically done with signs, brochures, commercials, direct mailings or e-mail messages, personal contact, etc.

One Definition of Promotion
Promotion keeps the product in the minds of the customer and helps stimulate demand for the product. Promotion involves ongoing advertising and publicity (mention in the press). The ongoing activities of advertising, sales and public relations are often considered aspects of promotions.

One Definition of Marketing

Marketing is the wide range of activities involved in making sure that you’re continuing to meet the needs of your customers and getting value in return. These activities include market research to find out, for example, what groups of potential customers exist, what their needs are, which of those needs you can meet, how you should meet them, etc. Marketing also includes analyzing the competition, positioning your new product or service (finding your market niche), pricing your products and services, and promoting them through continued advertising, promotions, public relations and sales.

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Ajax 05.15.06 at 12:00 pm

Having studied economics AND worked in marketing (not a common conjunction), I think a key problem with economists’ models of advertising is their impoverishment compared to reality. For instance, many more goods than most economists seem to realize are network goods — ie, goods where the (expected perceived) utility received by one consumer of the good depends on the (expected perceived) utility of other consumers of that good.

The example usually cited by economic theorists are products like fax machines or PC operating systems: an owner of a fax machine gets no value from it if no-one else has one. But almost every product or service has a network component, since, being social animals, almost all our consumption is social. It is rare, for example, for people to wear clothes which are completely different to those of their peers — in many years in business, I’ve never seen 16th-century Elizabethan court dress worn in a corporate environment. Why is this? Because part of the personal utility we each gain from the clothes we wear depends on what others think of those clothes, and hence of our individual choices.

When goods have a network aspect, one essential function of advertising is to help consumers co-ordinate their choices, ie, to allow us to assess what our peers (or people we would like to be peers) are likely to think of some product or service before we make our own individual, separate choices. This function of advertising is more than the mere provision of information, since it concerns actions and likely actions of multiple individual entities. Nor is it usually trivial to engineer. It also means that advertisers can rarely, if ever, manipulate consumer choices against their will. (If Galbraith were right on this point, there would be much more money and far fewer ulcers in the advertising industry.)

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spencer 05.15.06 at 12:55 pm

Having studied economics AND worked in marketing (not a common conjunction)

Not that uncommon, since I too have done both . . .

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Kip 05.15.06 at 2:02 pm

From what I can gather, the conversation wasn’t started to decide whether or not advertising is “good” or “bad” but what effect advertising has, if any, on the free-market economic ideas that Galbraith criticized.

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