The Economic Effects of Repealing Fair Trade Laws

Legislation in 1976 abolishing fair trade appears to have led to limited price cutting among retailers. In particular, stores identified by their managers as being “discount” outlets were found to have undercut the prices of other stores in most product groups while the pricing policies of chain stores and multi-line stores have not become more aggressive on fair trade items since repeal. Limited evidence indicates that a reduction in nonprice competition in the form of newspaper advertising and sales personnel has also attended repeal. Finally, a substantial increase in the frequency of business failures in fair trade states during 1976 indicates that a consolidation among retailers may have coincided with the abolishment of uniform, manufacturer-specified retail prices.     

Observations

This article is a commentary on the theme of the 2012 ICORIA Conference held in Stockholm, which was about ‘The changing role of advertising’. We propose that the role of advertising has not changed. The role of advertising has always been, and will continue to be, to sell more of the branded product or service or to achieve a higher price that consumers are willing to pay than would obtain in the absence of advertising. What has changed in recent years is the notable worsening of the academic–practitioner divide, which has seen academic advertising researchers pursuing increasingly unrealistic laboratory studies, textbook writers continuing to ignore practitioners’ research appearing in trade publications and practitioner-oriented journals, and practitioners peeling off into high-sounding but meaningless jargon. Also evident is the tendency to regard the new electronic media as requiring a new model of how advertising communicates and persuades, which, as the authors’ textbooks explain, is sheer nonsense and contrary to the goal of integrated marketing. We provide in this article a translation of practitioners’ jargon into more scientifically acceptable terminology as well as a classification of the new advertising formats in terms of traditional analogs with main stream media advertising.     

The Third-Person Effect in Advertising: A Meta-Analysis

Prior meta-analyses have found evidence for differences in the third-person effect across message types, indicating that the third-person effect is a communication context-specific phenomenon. These meta-analyses do not explain why effects of the perceptual hypothesis in advertising are smaller when compared to communication in general; they do not address the broad range of consumer behavior variables that are affected by third-person perceptions; and they have not investigated whether the perceived effects on the self or on others are better predictors for behavioral responses than third-person perceptions in advertising. This meta-analysis addresses these issues and investigates the perceptual and behavioral hypotheses of the third-person effect in an advertising context. Findings indicate that third-person perceptions in product advertising are weaker when compared to other communication messages due to developments over time and the mixed gratifications provided by product advertising messages. Third-person perceptions in advertising can increase or decrease consumer behavior depending on whether the behavior is self related (e.g., body-related responses) or other related (e.g., support for regulation). Furthermore, perceived effects on self or on others are better behavioral predictors than third-person perceptions, providing managerial implications for advertising campaign pretesting.     

Are services advertised differently? An analysis of the relationship between product and service types and the informational content of their advertisements

This study examines the informational content of service and product advertisements and analyses the relationship between the amount and type of information in an advertisement and the type of product or service being advertised. The influence that service characteristics have on advertising strategy is still not well understood. One theory is that services need to be more tangible in order to assist in the consumer decision-making process and advertising can assist with this by providing factual information. The purpose of this paper is to establish whether this theory is recognized and adopted in advertising practice. This is achieved by performing a content analysis. The results indicate that product advertisements contain more information than services, which indicates a discrepancy between advertising theory and practice. The results also prove that there are variances in the amount and type of information included in product and service advertisements. The paper examines these variances and applies existing classification frameworks to explain them. Areas for further research are also identified.     

Classified Advertising: A Neglected Medium

Classified advertising is an important medium. It produces more revenue than national newspaper advertising. By acting as a stabilizing force financially, classified advertising helps to maintain press freedom. Classified employs large numbers of people. For many reasons, classified advertising is usually less criticized than advertising generally. Yet classified is largely regarded with condenscension by the trade and virtually ignored by acidemia. This paper considers the definitions and treatment of classified advertising and discusses its regulation by the industry and government It also considers classified's underestimation, and its outlook and employment opportunities.     

The capital market spillover effect of product market advertising: Evidence from stock price synchronicity

We analyze whether product market advertising has a spillover effect on stock price synchronicity by transmitting firm-specific information to the capital market and attracting more investor attention. Using a sample of Chinese listed firms from 2009 to 2017, we find that firms with greater advertising expenditures have lower stock price synchronicity. The results are robust after we address endogeneity concerns. In accord with our hypothesis that product market advertising increases the amount of firm-level information capitalized into stock prices through the information channel, we find that the impact of advertising on synchronicity is more pronounced for firms with a higher degree of information asymmetry and firms in the consumer-product industry. Further tests show that product market advertising enhances the ability of current period returns to reflect future earnings, and thus rules out that the negative relationship between advertising and synchronicity is driven by noise trading. Our results imply that product market advertising plays an informative role and improves information efficiency in a capital market.     

An empirical analysis of national and local advertising effect on price elasticity

This paper investigates the interaction effect of advertising and price on the market share of a consumer nondurable product. We postulate a model in which local advertising is thought to primarily affect the consumers' purchase by making the demand more price sensitive, and national advertising to affect the consumers' preference, thus making the demand less price sensitive. Moreover, we hypothesize that local advertising interaction will have more immediate effect, while national advertising interaction will have longer term interaction effects. We apply these ideas empirically, and find support for our hypotheses. Thus, the interaction effect of advertising and price can be characterized by both increased and decreased price sensitivity, depending on the type of advertising. Moreover, these effects may be present simultaneously for the same product.     

The Impact of Stereoscopic Three-Dimensional (3-D) Advertising

The popularity of stereoscopic 3-D technology is encouraging advertisers to adopt this format as a new advertising tool in diverse contexts. This research investigates the impact of nonglasses and glasses types of stereoscopic 3-D advertising, and proposes a theoretical model examining the role of presence in advertising effectiveness. Due to their power to increase presence, both stereoscopic 3-D advertising formats have a significantly stronger impact on diverse marketing variables than flat 3-D advertising. A structural equation model reveals the process through which presence affects advertising effectiveness by enhancing enjoyment and increasing perceived product knowledge. In addition, the moderating effects of novelty and cybersickness on presence are identified.     

Pricing and persuasive advertising in a differentiated market

This paper examines the effects of consumer preferences, firms’ costs, and advertising efficiencies on firms’ pricing and persuasive advertising strategies. We show that as the firms’ horizontal differentiation increases, the firm with a lower value-added product tends to increase persuasive advertising, whereas its competitor tends to reduce advertising. Second, the firm receiving a favorable shock in product valuation will complement the favorable change with additional persuasive advertising rather than reduce advertising spending. Third, an equal improvement in advertising efficiency in the industry will lower the profits for both firms, whereas a decrease in advertising efficiency in the industry can benefit both firms. Fourth, a larger shock that improves a firm’s product valuation or unit cost is more likely to induce higher advertising spending in the industry. Lastly, an exogenous increase in the separation between firms’ product valuations or perceived qualities may actually reduce the price dispersion in the industry.     

SIMS: a Store Image Monitoring System

During the last decade the UK grocery trade has become increasingly competitive as national chains have fought for an increase in market share in a relatively static market place. Retailers have become more aggressive in their marketing strategies and tactics, one noticeable trend being a significant increase in promotion and advertising expenditure. To date, however, few studies have tackled the difficult question of evaluating the effectiveness of their advertising. The authors propose a system for continuous monitoring of the effects of advertising on retail store image using multidimensional scaling techniques, and demonstrate the system on a small-scale study of supermarket advertising.     

Product Differentiation,the Volume of Trade and Profits under Cournot and Bertrand Duopoly

This article analyses how product differentiation affects the volume of trade under duopoly using Shubik-Levitan demand functions rather than the Bowley demand functions used by Bernhofen (2001). The drawback of Bowley demand functions is that an increase in product differentiation increases the size of the market so the increase in the volume of trade may be the result of the increase in the size of the market rather than the increase in product differentiation per se. The Shubik-Levitan demand functions have the advantage that an increase in product differentiation does not increase the size of the market, but consumers still have a ‘love of variety’. It is shown that the volume of trade in terms of quantities falls with increasing product differentiation when the trade cost is relatively low, but rises with increasing product differentiation when the trade cost is relatively high. Among the results, it is shown that the trade liberalisation is more likely to be profitable under Cournot duopoly than under Bertrand duopoly for differentiated products with a positive trade cost.     

The Parity Product—Advertising's Achilles Heel

Relatively little has been written about parity product advertising in spite of the fact that a growing amount of advertising is for products that are not significantly different from competitors'. The lifeblood of successful national advertising is product differentiation; yet parity products are not all that different. Hence advertising creators use a variety of techniques to differentiate the similar. These communications are not the kinds of straightforward, informative, impeccably honest messages increasingly demanded of the advertising community. They are more akin to poetry than to product information. The parity product, then, makes advertising vulnerable to criticism from those who want it to be what it apparently cannot be.     

Us consumer product marketing in Saudi Arabia: Comparative perceptions

The period between 1970 and 1990 has seen a steady decline of the market share of US products in Saudi Arabia. This article deals with the differing perceptions of US exporters and Saudi importers regarding factors that might have contributed to this decline. These factors include the marketing environment, the product, the price, the distribution, US business practices, advertising, trade policies and the market situation in Saudi Arabia, and the role played by the US government. An analysis of these factors has led to a series of recommendations to respective governments and businesses.     

“Unprecedented,” “extraordinary,” and “we're all in this together”: Does advertising really need to be so tedious in challenging times?

As government-mandated lockdowns and steep declines in trade set in because of the COVID-19 pandemic, a common theme became apparent in the advertising of the time: It was all the same. Regardless of the product category or brand personality, many ads were remarkably similar. They began with melancholy music, voiceovers reminding the audience that the brand is here for them, and referred to these times as “unprecedented” and “extraordinary.” Ads reassured viewers that “together, we can get through this.” In this installment of Marketing & Technology, we articulate the problem of advertising sameness and explore how and why it likely arises during a time of crisis. We then discuss why advertising uniformity is a problem and present a series of strategic, media, and creative considerations—taking into account the constraints of a crisis— to help marketing professionals produce more effective advertising in the context of a disaster.     

Analyzing and Advancing the State of the Art of Advertising Self-Regulation

Personal in-depth interviews with executives of trade and professional business associations are the basis of a report on the state of the art of industrywide advertising self-regulation. Based on the experience developed by over 20 disparate industry groups, five essential criteria for effective advertising self-regulation programs are proposed. The article demonstrates that within industry is the knowledge and experience to increase the effectiveness of advertising self-regulation.     

Has the COVID-19 pandemic changed the influence of word-of-mouth on purchasing decisions?

The COVID-19 outbreak has led to drastic changes in influential media for purchasing decisions. Which media have been used more frequently after COVID-19? Do these changes differ between product types? To provide insights into these questions, we analyzed 12,000 respondents between 2018 and 2021. The results show that the influence of word-of-mouth on purchase decisions decreased after COVID-19, while the influence of social media advertising increased. We also find that the influence is moderated by product type; for example, video advertising, a subset of social media advertising shows a higher influence for search goods than for experience goods.     

International Advertising Expenditure Trends

This study identifies social uses of advertising by young male adults who have been brought up in a mass media-driven society, which makes them more advertising literate. A diary study revealed the frequent use of TV advertising slogans and taglines that did not directly relate to any product purchase or use occasion. Moreover, the meanings consumed by the group were independent of the product that the ads promoted. The topic of social uses of advertising by groups has far-reaching practitioner implications for advertising research and copy development, which are discussed.     

How does the added new online channel impact the supporting advertising expenditure?

This research addresses the strategic effect of a newly added online channel on a manufacturer’s supportive advertising expenditure once a manufacturer opts to open an online channel to compete with its retailer. We first study the manufacturer–traditional retailer supply chain and consider three different scenarios: (1) product is less compatible with the online channel than with the traditional channel; (2) product is more compatible with the online channel than with the traditional channel; (3) product has the same compatibility with the online channel as with the traditional channel. Our results show that the added online channel significantly impacts the manufacturer’s investment in supportive advertising. Depending on the different product categories, the impact of the newly added online channel on the supportive advertising expenditure also will be different. Furthermore, we extend our model to study the manufacturer–online retailer supply chain and investigate the effect of that added online channel on the manufacturer’s supportive advertising to the online retailer. Based on our results, the manufacturer can utilize our findings to improve its decision-making when it plans to open an online channel to improve its product distribution.     

Some Economic Issues and Policy Implications of Studies on the Competitive Effects of Advertising Expenditures

Abstract

The purpose of this article is to examine some of the litersture in Economics that concerns itself with the economics of advertising and to present some of the public policy implications of the results of these studies.

It is found that it is unlikely that advertising expenditures are subject to increasing returns to scale, thus probably do not lead to an increased concentration of industry for this reason.

A study is presented that deals with competition by advertising expenditures and product differentiation in the U.S. cigarette industry. It is found that advertising expenditures. during the 1956–68 period, were not effective in obtaining sales from competitors, although they may have had the affect of inducing new customers to buy the product. The effect of anti-smoking commercials is examined, and it is found that. although they may have had some effect on cigarette smoking. it is doubtful that they provide the impetus for the decreases in advertising expenditures in this particular industry.