ABSTRACT
This chapter analyzes the economic and social benefits and costs of advertising. It begins by distinguishing between informational and persuasive advertising. Informational advertising provides consumers with truthful information about price, location, or quality. Most newspaper, magazine, and direct mail advertising is informational, as is much Internet advertising. Persuasive advertising is designed to create a subjective positive reaction to a product. Much of the advertising on television is persuasive The major emphasis of the chapter has been on how advertising results in increased market power. Advertising may be the only effective method of entering some markets. RCA and Hughes Electronics entered the direct satellite television market with the DSS system through the use of a massive advertising campaign. The small satellite dishes provided new competition to cable systems and large satellite dish systems. The chapter focuses on empirical evidence. It generally suggests that high advertising expenditures are not significantly correlated with high product quality.
