ABSTRACT
When you are finished with this chapter you should understand:
That advertising expenditures by the firm include any expenditures aimed at increasing sales or protecting market share
How goods can be classified as search goods, experience goods, or credence goods, depending upon whether consumers have information about their surplus derived from consumption before or after purchasing the good
How a monopolist can use a rule of thumb for optimally setting advertising expenditures as a share of total revenue
How optimal advertising expenditures can depend upon factors such as the effectiveness of advertising and persistence effects if advertising could affect a firm’s stock of goodwill
That in a market with more than one firm, changes in advertising expenditures by one firm have a market-share effect and a strategic effect, and that more advertising makes a market more competitive
