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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.

Suggested Citation

  • Ferdinand Rauch, 2011. "Advertising Expenditure and Consumer Prices," CEP Discussion Papers dp1073, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp1073
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    References listed on IDEAS

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Advertising, brands, and prices
      by Eric Crampton in Offsetting Behaviour on 2012-11-16 00:00:00

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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.
    2. Kerkhof, Anna & Münster, Johannes, 2015. "Quantity restrictions on advertising, commercial media bias, and welfare," Journal of Public Economics, Elsevier, vol. 131(C), pages 124-141.

    More about this item

    Keywords

    Advertising; taxation of advertising; effects of advertising;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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