Becker and Murphy on advertising

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.

“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?

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.

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.

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.)

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.)

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!

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.

“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.

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

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.

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?

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.

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?

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

>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.

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.

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.

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.

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.”

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.

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.

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?

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.

“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.

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.)

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.