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Economics of Advertising

Santosh K. Patra, MICA, Ahmedabad

Strictly Confidential & Only for Student References (The instructor has not mentioned Citations as this is only for class room discussions)

Vulnerability for others is business

for us

Why advertising takes place?

Factors influence the amount of activity?

Beneficial or harmful economic force?

How much resource for advertising?

Strictly Confidential & Only for Student References (The instructor has not mentioned Citations as this is only for class room discussions)

Why does advertising take place?

Depends upon the market structure

Firms that operate in perfectly competitive markets don't need to compete actively to stroke up demand for their own product

In theory none of them have any influence over the market

Strictly Confidential & Only for Student References (The instructor has not mentioned Citations as this is only for class room discussions)

Monopolists also have relatively little to gain

from expanding resources on advertising

Oligopoly market structures are strongly motivated to advertise

Advertising or price competition- is a particular feature of oligopolistic market structure

Strictly Confidential & Only for Student References (The instructor has not mentioned Citations as this is only for class room discussions)

Are firms in control of their own

market?

Some economists- firms use advertising to

control of their own market

Firms are exposed to and threatened by the unpredictability of future events invest on adv.

Strictly Confidential & Only for Student References (The instructor has not mentioned Citations as this is only for class room discussions)

Manipulate market demands and guard against

sudden unexpected shifts in public tests

For some consumers appear to be the haples victims of corporations

More on bearing on brands than products

Strictly Confidential & Only for Student References (The instructor has not mentioned Citations as this is only for class room discussions)

Informative vs. Persuasive

Advertising

Inform consumers

Influence consumers by altering their tastes or preferences

Persuasive - is more questionable in terms of its impact on consumer welfare

Strictly Confidential & Only for Student References (The instructor has not mentioned Citations as this is only for class room discussions)

Advertising a barrier to market entry

To put up a barrier to market entry (recent Google

adv.)

Is a means of imposing high set up costs

Is a feature of oligopoly market structure?

Can protect the profitability in long run by creating

barriers to prevent entry

Method- keeping out new entrants is 'brand proliferation'

Strictly Confidential & Only for Student References (The instructor has not mentioned Citations as this is only for class room discussions)

Advertising and the performance of

the economy

Advertising has tended to grow as a proportion

of national economy

Advertising stimulates the level of consumption with high income per capita

Advertising is a waste of resources that can only afforded by rich countries

Strictly Confidential & Only for Student References (The instructor has not mentioned Citations as this is only for class room discussions)

The firms advertising decisions

Amount of advertisement depends on what it

believes that investment can achieve

What is the expectation in return for the

expenditure on advertising?

How to measure the effectiveness of

advertising?

Perception vs. Sales?

Strictly Confidential & Only for Student References (The instructor has not mentioned Citations as this is only for class room discussions)