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Advertising and Welfare: Comment

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Author Info
Carl Shapiro

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Abstract

In an earlier article Dixit and Norman studied the welfare effects of advertising. They came to the surprising conclusion that, even accepting postadvertising tastes as the welfare standard, monopoly advertising which raises price is excessive. The point of this comment is to show how and why their analysis fails to apply to the case where there is more than one consumer. Their analysis assumes that preadvertising consumption is distributed efficiently according to postadvertising tastes. Since this is not generally the case, there are gains to advertising ignored by Dixit and Norman.

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Publisher Info
Article provided by The RAND Corporation in its journal Bell Journal of Economics.

Volume (Year): 11 (1980)
Issue (Month): 2 (Autumn)
Pages: 749-752
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Handle: RePEc:rje:bellje:v:11:y:1980:i:autumn:p:749-752

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  1. Lynch, Michael & Miller, Ross M. & Plott, Charles R. & Porter, Russell., 1984. "Product Quality, Informational Efficiency and Regulations in Experimental Markets," Working Papers 518, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  2. Anderson, Simon P & Gabszewicz, Jean Jaskold, 2005. "The Media and Advertising: A Tale of Two-Sided Markets," CEPR Discussion Papers 5223, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  3. Ian McCarthy, 2008. "Advertising Intensity and Welfare in an Equilibrium Search Model," Caepr Working Papers 2008-003, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington. [Downloadable!]
  4. Simon Cowan, 2004. "Demand shifts and imperfect competition," Economics Series Working Papers 188, University of Oxford, Department of Economics. [Downloadable!]
  5. Häckner, Jonas & Nyberg, Sten, 2000. "Price Competition, Advertising and Media Market Concentration," Research Papers in Economics 2000:3, Stockholm University, Department of Economics. [Downloadable!]
  6. Häckner, Jonas & Muren, Astri, 2004. "Trademark Dilution - A Welfare Analysis," Research Papers in Economics 2004:15, Stockholm University, Department of Economics. [Downloadable!]
  7. Simon P. Anderson & Stephen Coate, 2003. "Market Provision of Broadcasting: A Welfare Analysis," Virginia Economics Online Papers 358, University of Virginia, Department of Economics. [Downloadable!]
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  8. Giovanni Immordino, 2007. "Advertising and Cost Reduction," CSEF Working Papers 177, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
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  9. Haan, Marco A. & Moraga-Gonzalez, Jose L., 2009. "Advertising for attention in a consumer search model," IESE Research Papers D/794, IESE Business School. [Downloadable!]
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  10. Justin P. Johnson & David P. Myatt, 2006. "On the Simple Economics of Advertising, Marketing, and Product Design," American Economic Review, American Economic Association, vol. 96(3), pages 756-784, June. [Downloadable!]
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  11. Simon P. Anderson, 2005. "Regulation of Television advertising," Virginia Economics Online Papers 363, University of Virginia, Department of Economics. [Downloadable!]
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