ABSTRACT
Empirical evidence suggesting that advertising has quantity effects has been accumulating for goods that, like tobacco and alcohol, have particular relevance to public policy. In thin markets, that is markets with few sellers or few buyers, imperfect competition can lead to prices that differ from the competitive equilibrium and hence result in Pareto-inefficient allocations of inputs and goods. If fully insured, then they can make themselves better off, and perhaps society in the aggregate worse off, by spending less of their own resources on loss prevention than they would in the absence of insurance. Perceived fairness was the major determinant of acceptability. Preferences may also change as a result of the consumption of addictive goods—utility at any time depends on both past and current consumption. Although many people undoubtedly do care to some extent about their relative standings among colleagues, relatives, or some other reference group, the implications of such interdependence for the economic efficiency of the competitive economy.
