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Advertising Bans

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  • Motta, Massimo

Abstract

This paper shows that an advertising ban is more likely to increase – rather than decrease – total consumption when advertising does not bring about a large expansion of market demand at given prices and when it increases product differentiation (thus allowing firms to command higher prices). In this case, the main impact of a ban on advertising is to reduce equilibrium prices and thus increase demand. It is argued that this is more likely to happen in mature industries where consumer goods are ex-ante (i.e. without advertising) similar and advertising is of the ‘persuasive’ type. The ban is more likely to increase firms’ profits the weaker the ability of advertising to expand total demand and the less advertising serves to induce product differentiation.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1613.

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Date of creation: Apr 1997
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Handle: RePEc:cpr:ceprdp:1613

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Related research

Keywords: Advertising; Alcohol; Bans; Product Differentiation; Regulation; Tobacco;

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References

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  1. McGuinness, Tony & Cowling, Keith, 1975. "Advertising and the aggregate demand for cigarettes," European Economic Review, Elsevier, vol. 6(3), pages 311-328, July.
  2. Johnston, Jack, 1980. "Advertising and the aggregate demand for cigarettes : A comment," European Economic Review, Elsevier, vol. 14(1), pages 117-125.
  3. Cabrales, Antonio & Motta, Massimo, 1996. "Country Asymmetries, Endogenous Product Choice and the Speed of Trade Liberalization," CEPR Discussion Papers 1326, C.E.P.R. Discussion Papers.
  4. Becker, Gary S & Murphy, Kevin M, 1993. "A Simple Theory of Advertising as a Good or Bad," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 941-64, November.
  5. Grossman, Gene M & Shapiro, Carl, 1984. "Informative Advertising with Differentiated Products," Review of Economic Studies, Wiley Blackwell, vol. 51(1), pages 63-81, January.
  6. Rosenkranz, Stephanie, 1996. "Simultaneous Choice of Process and Product Innovation," CEPR Discussion Papers 1321, C.E.P.R. Discussion Papers.
  7. Baltagi, Badi H & Levin, Dan, 1986. "Estimating Dynamic Demand for Cigarettes Using Panel Data: The Effects of Bootlegging, Taxation and Advertising Reconsidered," The Review of Economics and Statistics, MIT Press, vol. 68(1), pages 148-55, February.
  8. Hamilton, James L, 1972. "The Demand for Cigarettes: Advertising, the Health Scare, and the Cigarette Advertising Ban," The Review of Economics and Statistics, MIT Press, vol. 54(4), pages 401-11, November.
  9. Kwoka, John E, Jr, 1984. "Advertising and the Price and Quality of Optometric Services," American Economic Review, American Economic Association, vol. 74(1), pages 211-16, March.
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Citations

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Cited by:
  1. Jeffrey A. Miron, 1997. "The Effects of Alcohol Prohibition on Alcohol Consumption," Papers 0078, Boston University - Industry Studies Programme.
  2. Clements, Kenneth W., 2004. "Three facts about marijuana prices," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 48(2), June.
  3. Nelson, Jon P. & Young, Douglas J., 2001. "Do Advertising Bans Work? An International Comparison," Working Papers 6-01-1, Pennsylvania State University, Department of Economics.
  4. Nelson, Jon P., 2001. "Alcohol Advertising and Advertising Bans: A Survey of Research Methods, Results, and Policy Implications," Working Papers 7-01-2, Pennsylvania State University, Department of Economics.
  5. Christian Jansen, 2003. "Convergence and the Potential Ban on Interactive Product Placement in Germany," Law and Economics 0302002, EconWPA.

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