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Advertising and Welfare

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  • Dixit, Avinash K
  • Norman, Victor

Abstract

This paper applies conventional welfare-theoretic methods to study advertising which changes consumer tastes. In a wide range of empirically plausible circumstances, private profitability is seen to be necessary but not sufficient for the social desirability of a small amount of advertising. The market equilibrium level of such advertising is shown to be socially excessive, even when postadvertising tastes are used as the standard for welfare judgments and the monopoly profits resulting from the advertising are included in welfare. Settings of monopoly, oligopoly, and monopolistic competition are examined, and the contention that advertising is excessive is found to be strengthened at each stage.
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Suggested Citation

  • Dixit, Avinash K & Norman, Victor, 1976. "Advertising and Welfare," The Warwick Economics Research Paper Series (TWERPS) 082, University of Warwick, Department of Economics.
  • Handle: RePEc:wrk:warwec:082
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