ABSTRACT
This chapter analyzes the economic and social benefits and costs of advertising. It examines a number of major theories that have been advanced concerning the relationship between market structure and advertising. The chapter deals with the relationship between advertising and monopoly and then examining the relationship between advertising and oligopoly. One of the earlier models of the relationship between market structure and advertising was developed by Robert Dorfman and Robert L. Steiner. The most controversial aspect of the general topic of product differentiation is advertising aimed at creating subjective differences between products. Informational advertising provides consumers with truthful information about price, location, or quality. Empirical evidence suggests that advertising about price, referred to as price advertising, results in lower prices. Advertising may help manufacturers take advantage of economies of scale in production and distribution. The social costs of persuasive advertising, therefore, may be substantial.
