Essay about Economics and Advertising
According to Philip Kotler, advertising is about selling and advertising goals are to inform, influence and remind. In contemporary society, advertising is regarded as having two functions, persuading customers and informing them (Santilli, 1983)
According to Marcnerlove and Kenneth J. arrow (1962), the present and future demand of a product is affected by advertising expenditure and henceforth, the future revenue of the firm. Basic economic theory suggests that all firms are profit maximisers and in our analysis, we assume that firms only advertise when they have an incentive of getting better returns.
This is where we introduce the Dorfman-Steiner condition, which states that the advertising-to-sales ratio equals the ratio …show more content…
Moving on, we classified industries such as tourism or firm’s producing fast moving consumer goods (FMCGs) under the category of near perfect market competition (NPC). This means that firms in these industries have slightly differentiated products and they use informative and persuasive advertising. Advertising in NPC is not done on a large scale; however it is a step forward in terms of doing advertising as the concentration ratio increases.
We also classified firms under monopolistic competition where concentration ratio is not as high as an oligopoly or monopoly, but it is still higher than PC and NPC. Firms that