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Advertising – The Source of Information and its Impact on Society

Some topics are more confusing, or controversial, than advertising’s role in society. Simply put, economics is the study of the allocation of scarce resources. Although there are many possible definitions, this is the definition most generally accepted by economists. In the allocation of resources, the normal functioning of a free enterprise economy is based on the idea that the consumer makes this allocation in that he or she is free to make choices. A person can choose one type of job or profession over another and is free to choose this product instead of that one. Just as our wants differ, so do our abilities to satisfy our wants. Channeling or directing wants so that they will be socially beneficial is accomplished not by coercion, but by persuasion.

Advertising Is Wasteful

The traditional economic view that free business advertising is wasteful is based on the assumption that consumers already possess perfect information and can make their choices (allocate resources) without advertising. That assumption does not hold up. That people do not have complete information and that they seek information is attested to by subscribers to consumer magazines. Information is an economic good and is subject to the laws of supply and demand as are other economic goods.

Advertising has proved to be a more efficient (less costly) source of information than other sources. If this were not true, then advertised brands would cost more relative to quality, and consumers would choose unadvertised brands. Thus consumers, in buying advertised brands, are allocating resources to advertising; they consider that for obtaining information, advertising is the most efficient use of resources. It may not seem necessary that we be offered a choice of dozens of competing detergents or brands of after-shave lotions. But when we view this selection as a manifestation of the whole philosophy of freedom of choice, which builds from trivial decision to matters of ultimate concern such as choosing our elective leaders, it takes on new significance.

Advertising is sometimes referred to as the “voice of free choice,” and certainly manufacturers seeking to serve diverse wants under a system of free choice should have the opportunity to communicate the news about the availability of their products to potential buyers.

Advertising Is Persuasive, Not Informative

Economists who take this position believe that advertising is not interested so much in fulfilling the desires of consumers as in changing desires to fit that which has been produced. In other words, people’s tastes are changed so that they will buy what has been manufactured. This criticism in reality is a negation of the concept of consumer sovereignty, which claims that “the free market generates the flow of production along the lines that satisfy consumer tastes; their tastes determine what shall be produced”.

Producer sovereignty governs the consumer, according to this argument. And argue we could over whether the consumer is king or not. Rather than engage in a long harangue over consumer versus producer sovereignty in the marketplace, we prefer to turn our attention to the question of whether advertising is informative. If, in fact, it is informative, is it less informative because it also is persuasive?

Advertising as Information

At one time economists distinguished between “informative” advertising and “competitive” advertising. The latter was designed primarily to shift demand from one brand to another and therefore was called undesirable, uneconomic, and wasteful. Informative advertising, on the other hand, was in favour. Examples of informative advertising under this system of classification were classified advertising in newspapers, price-oriented advertisements sponsored by retailers, and so on. In a pure sense, only price and terms of sale were classified as information. However, it came to be realized that every ad, if it is to be effective, must contain some elements of information; and identifying advertising as competitive is difficult, if not wholly unrealistic.

 

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