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Advertising Expenditure and Consumer Prices

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  • Ferdinand Rauch

Abstract

This paper studies the effect of a change in the marginal costs of advertising on advertising expenditures of firms and consumer prices across industries. It makes use of a unique policy change that caused a decrease of the taxation on advertising expenditures in parts of Austria and a simultaneous increase in other parts. Advertising expenditures move immediately in the opposite direction to the marginal costs of advertising. Simultaneously the price reaction to advertising is negative in some industries (food, education) and positive in other industries (alcohol, tobacco, transportation, hotels and restaurants), depending on the information content of advertising. The paper reconciles these findings using a model that contains informative and persuasive forces of advertising.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1073.

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Date of creation: Aug 2011
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Handle: RePEc:cep:cepdps:dp1073

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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Keywords: Advertising; taxation of advertising; effects of advertising;

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Advertising, brands, and prices
    by Eric Crampton in Offsetting Behaviour on 2012-11-15 18:00:00
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Cited by:
  1. Carol A. Corrado & Janet X. Hao, 2014. "Brands As Productive Assets: Concepts, Measurement, and Global Trends," WIPO Economic Research Working Papers 13, World Intellectual Property Organization - Economics and Statistics Division.

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