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Advertizing and utility maximization – a
theoretical exercise
Dr. A. F. M. Ataur Rahman1
Associate Professor
Department of Economics
North South University
Dhaka, Bangladesh
Email: [email protected]
and
Ahmed Abu Bakr
Department of Economics
North South University
Dhaka, Bangladesh
Abstract
Marketing operations in modern business are perceived to create a certain position of a product
in consumer's mind. This service is well accepted by the firms and they invest a sizable portion of
their budget for marketing operations. Although by definition, marketing is the act of
understanding consumer's preference and producing goods that cater their demand better, yet
most of the firms try implicitly to influence consumer's preference and make a favorable position
for their product in consumer's mind through marketing operations. Advertising , as a part of
marketing operation is no different. This paper takes this issue in some details. We here first
tried to develop a model for the effect of advertising using neo classical framework and then
tried to see how advertising operation influences the standard parameters of an utility function.
This exercise is important as it will help us to see how advertising fits in our utility maximization
based demand theory. We developed such model assuming that advertising actually alters such
parameters and hence distorts the consumers' preference structure. We concluded in our
theoretical model that advertising will affect positively on consumer demand. However using
micro level data of two prime brands of toothpaste we have found that advertising effort actually
does not affect utility function.
1
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