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Advertising bans

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  • Massimo Motta

Abstract

I show 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. I argue 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 the more likely to increase profits of the firms 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 Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 205.

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Date of creation: Oct 1996
Date of revision: Jan 1997
Handle: RePEc:upf:upfgen:205

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Web page: http://www.econ.upf.edu/

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Keywords: Advertising; bans; product differentiation; regulation; tobacco; alcohol;

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References

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  1. 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.
  2. Johnston, Jack, 1980. "Advertising and the aggregate demand for cigarettes : A comment," European Economic Review, Elsevier, vol. 14(1), pages 117-125.
  3. Rosenkranz, Stephanie, 1996. "Simultaneous Choice of Process and Product Innovation," CEPR Discussion Papers 1321, C.E.P.R. Discussion Papers.
  4. 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.
  5. McGuinness, Tony & Cowling, Keith, 1975. "Advertising and the aggregate demand for cigarettes," European Economic Review, Elsevier, vol. 6(3), pages 311-328, July.
  6. Grossman, Gene M & Shapiro, Carl, 1984. "Informative Advertising with Differentiated Products," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 51(1), pages 63-81, January.
  7. 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.
  8. Becker, Gary S & Murphy, Kevin M, 1993. "A Simple Theory of Advertising as a Good or Bad," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(4), pages 941-64, November.
  9. 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.
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Cited by:
  1. Jeffrey A. Miron, 1997. "The Effects of Alcohol Prohibition on Alcohol Consumption," Papers, Boston University - Industry Studies Programme 0078, Boston University - Industry Studies Programme.
  2. Kenneth W. Clements, 2004. "Three Facts About Marijuana Prices," Economics Discussion / Working Papers 04-06, The University of Western Australia, Department of Economics.
  3. Christian Jansen, 2003. "Convergence and the Potential Ban on Interactive Product Placement in Germany," Law and Economics, EconWPA 0302002, EconWPA.
  4. 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.
  5. 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.

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