True or False Question on Advertising Economics?

Advertising impedes competition by leading consumers to believe products are more differentiated than they really are. Therefore, advertising can never promote competition and is exclusively an anticompetitive practice.





True or False?True or False Question on Advertising Economics?
This is an interesting question.





But I think it is more of an opinion or ideology question than a factual one. There are some people that surely believe this, though it is a very cynical attitude.





The goal of advertising is not to lead consumers to believe that products are more differentiated than they are. That is a goal that would serve all large companies in a specific market, and advertising is meant to serve only the company that paid for it. How differentiated their products are from their competition has nothing to do with the advertising for those products. The company will advertise no matter how similar or dissimilar their products are.





The word ';never'; in your statement therefore is what would make it seem false to me, since there is no reason that advertising cannot promote competition among dissimilar products.





Of course, from a practical standpoint this complaint is fairly valid, since in real life most products produced by major advertisers are relatively similar to one another in quality and function. Shoes are shoes. Soda is soda. So in practice, advertising does not produce what we could call ';productive competition;'; i.e. competition that benefits the consumer by offering him more choices and a better range of products.





In Adam Smith's Wealth of Nations this is the type of competition that is good for the public, and so people often appeal to this ';competition'; as a justification for capitalism and when it is absent accuse the marketplace of not doing it's job. And in this sense, it is true that advertising is generally (though not universally) ';anticompetitve'; in the Adam Smithian sense.





But even though Adam Smith was a capitalist he was opposed to big corporations, believing them to be an ';enemy of the public.'; So of course judging the behaviour of large corporations by Adam Smith's standards will cause one to judge against them.





The reality is that real competition need not benefit the consumer. It is merely the opportunity for various companies to try to make more money than each other in the same market. If company A and company B are competing, they do not need to make different products to do so; they merely need to have a strategy which expands their sales and generates a greater market share. In this sense the only purpose of advertising is to help the sponsor compete.True or False Question on Advertising Economics?
False.





When advertising gets to that point, it is even more competitive because if one company spends less than another on advertising, it will lose its share of the market. While advertising may lead consumers to believe products are more differentiated than they really are, it does not reduce competition. In fact, advertising causes a need for greater advertising spending in the long run. Else, the company will fail to its competitors who maintained the spending.