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Chapter 24 Economic, Social, and Legal Effects of Advertising

-List three eras of advertising criticism

-Identify economic arguments for and against advertising


1. Advertising provides consumers with information to make informed decisions about

new products, availability of products, price, and product benefits.
2. Advertising supports largely unrestricted media that disseminate news and
entertainment. It also provides employment for thousands of workers in these media.
3. By promoting product differentiation, advertising encourages continuing product
improvements and the introduction of new and innovative goods and services.
4. Mass advertising permits companies to achieve economies of scale in production that
more than offset the per unit cost of advertising and combined with competition,
result in lower prices
5. Advertising contributes to increases in the overall economy by increasing generic as
well as brand consumption.


1. The intent of advertising is to persuade, not to inform. Ads only provide positive
information about a brand
2. On a macroeconomic basis, advertising spending is largely wasted because it
primarily causes consumers to switch from one brand to another without any net gain
to society.
3. Many economists challenge the notion that advertising lowers the price of products
and services. Primary goal of advertising is to insulate a brand from price competition
by creating emotional appeals so price becomes less and less important.
4. The high rate of advertising expenditures in many product categories makes it
difficult, if not impossible for new products to enter the market.

-Explain the difference between inadvertent and intentional social roles of advertising

Inadvertent: advertising conveys largely unintended messages that nevertheless, impart

information about society in general or some segment of the public. By the sheer weight of
exposure, advertising sets a social agenda of what is expected, what is fashionable, and what
is tasteful to a significant number of people.

Overt role: Campaigns whose primary objective is promoting social change. Ads that
promote safe driving, adult literacy, and environmental causes. Interest groups have seen the
value in effective advertising.

-Identify the social criticisms of advertising

 Privacy concerns. In recent years, consumers have become increasingly concerned
about privacy issues. The heightened awareness is in large part the result of the
development of sophisticated communication technology. Cookies. Do Not Call to
limit telemarketing.
 Product placement. Advertisers are using various placement techniques as a part of
their core marketing plan rather as a minor strategy.
 Advertising’s role in obesity. A number of lawsuits have been filed to high profile
fast food chains charging that their promotions of high calorie, fatty menu items have
led to various health problems.

Explain the difference between issue-advocacy and cause-related advertising

Issue-advocacy: the tone of many of these ads is negative, as groups seek to derail proposed
legislation or emphasize shortcomings in an opponent’s plan. Rich companies can invest
millions in a campaign including commercials, public relations, and media buying to
influence the debate.

Cause-related: Companies market their good deeds in the same way they market their
products. American Express sponsored a campaign promising to make a donation to the
renovation of the Statue of Liberty each time someone used their card.

-Describe the FTC’s role in advertising regulation

Their role is to create a free marketplace based on dissemination of complete, truthful, and
nondeceptive advertising. They also investigate various sales practices and illegal pricing
activities. Advertisers must be able to substantiate their claims.

1. There must be a representation, omission, or practice that is likely to mislead the

2. The act or practice must be considered from the perspective of a consumer who is
acting reasonably.
3. The representation, omission, or practice must be material.

-Discuss the components of the Central Hudson Four Part Test

1. Is the commercial expression eligible for 1st amendment protection? Is it neither

deceptive nor promoting an illegal activity? No protection can be provided for
commercial speech that fails this test.
2. Is the government interest asserted in regulating the expression substantial?
Requires that the stated reason for regulating the advertisement must be of primary
interest to the state.
3. If the first two tests are met, the Court considers if the regulation of advertising
imposed advances the cause of government interest asserted. If we assume that an
activity is of legitimate government concern, will the prohibition of commercial
speech further the government’s goals?
4. If the first three tests are met, the Court must finally decide if the regulation is
more extensive than necessary to serve the government’s interest. Is there a less
severe restriction that could accomplish these same goals?

-List three negative consequences of comparison advertising

 Comparative advertising runs the risk of inadvertently promoting competitive brands

and or appearing to offer credibility to them by including their names.
 Some comparison advertising techniques may appear unfair to consumers and damage
not only the reputation on the brand using it, but also advertising in general.
 Firms often fear that comparative advertising claims will precipitate lawsuits by
companies that think their brands have been unfairly disparaged.

-Discuss the primary roles of the NARC, NARB, and the CARU in supporting
advertising regulation

They're located in the discussions under the requests/offers of notes section titled Notes
for Test #3. The first section of them is reading notes, the second is lecture notes, and
the third is group presentation notes.