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Six Models of Advertising Welfare

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  • Dan Usher

Abstract

The incentive to advertise is a consequence of monopoly power, for there is nothing to gain from advertising by a firm that can sell its entire output at an invariant market price. Advertising is expenditure by a firm to increase the elasticity of demand for its product or to shift the demand curve to the right. This article examines six possible reasons for advertising. It may: 1) provide information about goods and services; 2) enhance a psychic quality of the advertised good; 3) reduce the psychic quality of goods that substitute for the advertised good; 4) persuade people to act against their true interests; 5) finance public goods; 6) provide a signal of quality. Though all six effects have been recognized in the literature, they have not been examined together. Focus on one exclusively can convey a misleading picture of the social consequences of advertising and suggest inappropriate policy prescriptions.

Suggested Citation

  • Dan Usher, 1989. "Six Models of Advertising Welfare," Working Paper 756, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:756
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