Download Advertising: The Pros and Cons

Deborah DeNike
Professor Sproul
Econ. 171
September 11, 2002
14.d. Advertising: The pros and cons.
There are many benefits as well as skepticism about the effectiveness of advertising by firms.
Some economists believe that advertising can make consumers more informed and help lower the price of
products by competing firms. Other economists feel that resources are wasted and a consumer’s choices
become distorted with advertising claims. There is one thing that is generally agreed upon by all
economists and that is that firms use advertising as a tool to increase the demand for their products.
Pros:
Advertising by firms promotes a brand name image and increases the demand by consumers for their
products.
Consumers are ‘protected’ as the brand name maintains a certain level of quality.
Advertisings help provide information to consumers so that they can make more informed choices.
Consumers benefit by the information because there is less price dispersion (a range of different prices for
the same product).
A firm takes some of the burden off of consumers doing their own research.
Advertising makes consumers more aware of alternative products available on the market.
Cons:
Advertising helps firms establish a brand name and maintain (monopolistic) market power.
There are more concentrated industries and enhanced market power of firms due to ‘brand naming’.
Advertising can create a barrier to entry in the sense that consumers identify with a brand name and are
skeptical about trying new products.
Advertising critics believe that ads are wasteful and uninformative.
Ads can be suggestive and cause consumers to buy things that they have no use for.
Cooperation in Advertising—firms form associations in advertising, so they can receive discounts when
advertising and lower costs. These firms can mutually benefit by putting up ads, big billboards, etc.