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ECON ADVERTISING EFFECT

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Downloads to date: N/A | Words: 545 | Submitted: 13-Jun-2011
Spelling accuracy: 88.4% | Number of pages: 2 | Filetype: Word .doc

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effect of advertising

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Hi gd afternoon everyone.im going to analyse the issue on Advertising.
firstly let me introduce the bg facts of it.

In 1990,there was a deregulation on advertising of doctors in Australia.
traditional view:advertising by drsàunsavoury practice and waste of scarce resources
Dr shd be allowed to undertake restricted types of advtersing
adv created unjustified expectation or promoted unnecessary or inappropriate use of medical services.
Critics:the effect of advertising costs on the price of medical services

Some studies at US:supportive data on deregulation
in 1983-the federal trade Commission(FTC) surveyed 3200 lawyers in 17 states n concluded that the fees of the diff cases were 5-13% lower in cities with fewer restriction on advertising
another study compared prices of eyeglasses in states that had restrictions on advertising to prices in states that did not
=state w/ advàthe retail prices of eyeglasses were 25-40% higher

Critics of adv(claims that):advertising=barrier to entry against new firms.

Brand loyalty allow firms t raise their prices without losing many customers

researchers conducted an experiment in which 150 subjs from Detroit were given two plates of turkey meat.one plate is being advertised,another plate had an unknown brand.the advertised brand-name meat:56% unknown brand:34% ok with both=thinks they tasted alike:10% àIn fact:the slices of turkey meat actually is from both samples came from the same turkey.

In 1967,there was a study investigated the relationship between advertising expenditure and profits in 40 industries.

Conclusion:advertising=highly profitable activity,the frofit rate can account for by the entry barriers created by advertising expenditures and by the achievement of market power

HOWEVER

another economist claim that advertising is not a barrier to entry.
theres a study by Yale Brozen found that advertising allow new entrants to penetrate markets dominated by long-established firms

advertising gives new competitors a chance to introduce their products and win customers


Q1)Advertising is a waste of resources because it unnecessarily raises the cost of a good or service;therefore all advertising should be banned.Give three arguments against this idea.

i)Advertising=can win customer.
eg.turkey meat
ii)the demand of advertised product can cover the raised cost of the product=highly profitable
iii)barriers to entry(persuasion function):when there a new competitor trying to induce the customers n develop their business and their brand by doing advertising,so to induce the customers (getting everyone attention)to try their new products


Q2)Some producers of essentially homogenous products such as particular varieties of oranges,apples,and tomatoes attempt to differentiate their product by attaching small stickers that give the name and logo of the producer.Why do you think these producers go to the added expense of attaching these stickers

Referring to the turkey meat case/spend more on advertising the profit can attract more customers so as to make more profit.the advertised meat n ...

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