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1、Chapter 11 Advertising No business behavior will make economists unchargable than advertising.L.Telser： “advertising and competition” Advertising has been one indivisible part of our lives. But we still know little about its influence. Generally, advertising can be defined as one form to provide pro
2、ducts and services information of price, quality and location, etc.Questions What is advertising? Why advertising? How to make decision of advertising? Does society benefit from advertising?11.1 Classification:Information, persuasionNelson（1970）： Search good：is one whose features the consumer can as
3、certain before purchase.experience good：is one whose features can be ascertained only upon consumption.（credence goods, when quality cannot be determined even after consumption. Examples include medical and legal service.） Nelson declared that,there is difference of advertising effect between these
4、two kinds of goods. Some tests shows that for the ratio of advertising spending to sales, experience goods is really higher than search goods.Two kinds of advertising Informative advertising：describes the products existence,its characteristics(e.g.,weight,size,speed) and selling terms(e.g.,price, fi
5、nancing interest rate). Persuasive advertising：is designed to change consumers prefernces.(“our product tastes better”,etc.) 11.2 Advertising Intensity Some industries spend more on advertising than others.This can be seen by measuring advertising intensity, specifically the advertising-revenues rat
6、io. How to explain this difference? 2007年11月各媒体前十位类别类别 广告投放排名单单位：百万元TVPrintNO.CategoryAd SpendNO.CategoryAd Spend1化妆品/浴室用品4,738.17 1房地产/建筑工程行业1,562.28 2药品4,157.19 2商业及服务性行业997.58 3食品3,336.65 3交通820.32 4商业及服务性行 业2,588.26 4邮电通讯312.98 5饮料1,654.19 5化妆品/浴室用品284.14 6娱乐及休闲1,226.43 6药品265.91 7邮电通讯1,122.76 7
7、金融投资保险177.97 8酒精类饮品981.14 8食品172.74 9交通856.44 9个人用品168.11 10清洁用品843.18 10电脑及办公自动化产 品161.94 RadioOutdoorNO.CategoryAd SpendNO.CategoryAd Spend1商业及服务性行业103.07 1房地产/建筑工程行业321.48 2交通 99.77 2商业及服务性行业210.06 3邮电通讯76.30 3邮电通讯135.56 4金融投资保险62.38 4金融投资保险130.10 5娱乐及休闲62.11 5娱乐及休闲116.74 6活动类48.01 6交通92.91 7房地产/
8、建筑工程行 业46.12 7家居用品87.06 8食品30.10 8衣着75.91 9饮料27.33 9工业用品68.24 10酒精类饮品23.58 10电脑及办公自动化产 品59.82 备注： 1）以上数据是由CTR 媒介智讯监测的媒体为统计基准； 2）广告费以媒体公开报价为统计标准，不含折扣。 3）广告费不含免费项目； 4）电视频道广告监测时间17:0024:00 ：TNS媒介智讯（全球第二大市场研究集团TNS的所属最大的专项研究品牌） Temporarily, lets slide over the advertisings difference of informative and p
9、ersuasive, just simply assume that advertising means the change of consumer demand. Assumption：Monopolys demand function ishere andis demands price elasticity and advertising elasticity Monopolys optimal decision question is The first-order condition we can get and the result is Its called Dorfman-S
10、teiner formula. Dorfman-Steiner formula shows that advertising intensity with profit maximization equals the ratio of advertising elasticity to price elasticity. Advertising spending is positive correlated with advertising elasticity,and negative correlated with price elasticity. And，we also can get
11、it means the ratio of advertising spending to revenues equale the product of advertising elasticity and gross margin.Advertising：optimal values and observed values（Australia）Market Instant coffee.019.020 Bottled beer.008.011 Cigarettes.019.046 Toilet soap.013.012 Laundry washing powder.019.030Toothp
12、aste .024.059 Paint （finished costs）.009.019Motor spirit.017.016Market structure and advertising intensity A second related question is：how does advertising intensity vary with market structure? Or, according to Dorfman-Steiner formula, how do the firms advertising and price elasticity vary with mar
13、ket structure?Price elasticity Consider price elasticity：the greater the number of firms, the greater the firms price elasticity of demand(in absolute value). Namely, by decreasing its price, not only is firm I increasing total demand,it is also increasing its market share; and the second effect is
14、greater the lower firm Is market share is. Conclusion：the more fragmented the industry is, advertising intensity be lower.Advertising elasticityConsider advertising elasticity ： Extreme case1：suppose that advertising increases every firms demand equally. In other words, advertising is a public good.
15、 In this extreme case, each firms advertising elasticity decreases as concentration decreases. 。 In fact, the more fragmented the industry is, the loewr the benefit from advertising that is captured by the firm that pays for it.E.g., case of diamond industry Extreme case2：suppose total demand is fix
16、ed and independent of advertising; the only effect of advertising by firm I is to shift demand across rival firms. (e.g., prescription drugs) Here, clearly, with market concentration decreases, advertising intensity increases.Case of DuPont：Spandex Spandex ：一种用于制造多种流行服饰的弹性纤 维。1959年杜邦公司发明，品牌名莱卡。 杜邦的莱卡品牌市场份额超过60%（其他的份额 被
