Advertising and Society

Advertising and Society, by Yale Brozen (ed.), New York: New York University Press, 1974, 189 pp., $8.95 (hb), $3.00 (pb).

One of the more obtrusive features of 20th century capitalism has, without doubt, been the massive use by business of the techniques of advertising, in order to spur sales. Both economists and laymen have, understandably, been concerned about the social impact of advertising. And critics of capitalism have not failed to cite advertising as a powerful and objectionable feature of capitalism, claiming that the use of advertising makes a mockery of any notions of consumer sovereignty. Advertising, the critics claim, carries with it the likelihood of mass deception and manipulation of the public, discourages competition, and in general consumes enormous quantities of resources without ministering to correspondingly substantial public purposes.

The truth is that these denunciations of advertising are largely based on misunderstandings concerning the nature of the market process. But it is only quite recently that this anti-advertising position has come to be seriously challenged by economic theorists. Moreover there is every indication that governmental pressure to control advertising—a pressure arising out of the popular suspicions concerning advertising—are likely to become intensified rather than to diminish.

This volume of papers (originally presented as a series of lectures, sponsored by the International Telephone and Telegraph Corporation at the Graduate School of Business of the University of Chicago) will, hopefully, contribute a valuable corrective to many of the popular misconceptions surrounding advertising. Although the various contributors to the volume by no means make up a monolithic position, they do almost without exception display a healthy skepticism towards popular allegations concerning advertising. The collection of papers includes, moreover, contributions of several outstanding economists who have, in recent studies, gone a long way towards a more accurate, scholarly evaluation of the social role and consequences of advertising. The book's editor, Yale Brozen—a prominent figure among these latter economists—is to be congratulated for his part in organizing and inspiring the contributions to this volume. The collection would, in this reviewer's opinion, have been considerably enhanced by an introductory chapter by the editor surveying the various issues raised in the controversy surrounding advertising, and relating the several papers to these issues. It is to be regretted, in addition, that no index was prepared for the volume. And—both for the convenience of the serious reader, as well as to provide greater visibility for the literature drawn upon by the authors—it would have been helpful for the Notes and References to have been assembled at the end of the volume (rather than being hidden piecemeal at the end of each paper.)

Although there was apparently some effort made to include lawyers and other noneconomists among the contributors, it turns out, not surprisingly, that it is the economic issues relating to advertising which occupy the center of the stage. And it is to these issues that the following remarks will be confined.

THE ISSUES

Several of these issues recur again and again in the various papers. First, the persuasive character of advertising is frequently a target of advertising critics. It is held wasteful and, indeed somewhat sinister that consumers should have to foot the bill to have their tastes moulded and manipulated for the sake of enhancing the profits of manufacturers who choose to produce goods in which consumers have insufficient independent interest.

Also, the informational aspect of advertising—which has traditionally been considered at least a partial justification for a social role of advertising—has frequently been challenged by the critics. These critics argue that product information provided by those most interested in selling the product is necessarily suspect: misleading, deceptive and even downright false advertised information is virtually assured.

Yet another widely-held criticism of advertising sees it as building up consumer brand loyalty to a degree which effectively blocks the entry of new brands, and thus seriously reduces the degree of competition.

Each of these arguments has been used not only to criticize advertising (and, by implication, the free market), but has also inspired governmental interventions to "protect" the public from the consequences of unhampered advertising.

The various writers who address these controversial issues in this volume do so generally with sound good sense. Thus on the complaint that persuasive advertising changes tastes, Harold Demsetz (p. 76) asks? "Why are the new tastes that you are persuaded of inferior to the old ones that you were also persuaded to hold?" Demsetz suggests it is because large numbers of consumers can be persuaded to buy a relatively small number of standardized qualities of a certain good, that society is spared the cost of custom-made goods for each consumer. Phillip Nelson, (while unwilling to deal at length with the taste-changing aspects of advertising) points out, in passing (p. 44), that no one forces consumers to read or listen to advertising messages: "if advertising changes tastes, it does so for consumers who choose to have their tastes changed—who, in fact, must be willing to pay for the privilege."

Concerning the dangers of deceptive advertising Lester Telser notes (p. 30) the market forces which tend to keep the problem within manageable proportions. For commodities in which repeat buying is common, deceptive advertising clearly tends to be self-defeating except in the shortest of runs. For cases, such as the tourist trade, where repeat buying might not appear able to exercise its discipline, the market responds by making "the optimal size firm of restaurants catering to the tourist trade consist of a chain under one name," so that "if a tourist is happy with one member of the chain, then he is likely to buy from another member of the same chain anywhere." Nelson (pp. 57f) emphasizes that the "circumstances under which advertisers have the greatest incentives to deceive if consumers believed them are precisely the circumstances under which consumers would be least inclined to believe advertising." It follows that "the more the law protects against fraud, the more people think the law protects against fraud"—with consequently greater incentive to deceptive practices. Richard Posner (who provides a penetrating critique of FTC policies concerning deceptive advertising) discusses, albeit with tantalizing brevity, the issue of ensuring that consumers receive just the amount of information for which they are willing to pay (pp. 120f). A needed step towards restoring perspective on deceptive business advertising is suggested by Milton Kotler's discussion (p. 180) of the truth-content of political advertising, of charity advertising, and of advertising by governmental agencies such as the U.S. Army (with note taken of the invulnerability of such advertising to the competitive market checks to which commercial advertising is subject.)

The charge that advertising inhibits competition is also given refreshingly unceremonious treatment in this volume. Nelson argues cogently (pp. 53f) that advertising "makes entry easier rather than more difficult." Brozen devotes his paper to an extensive discussion of the influence of advertising on entry, citing several empirical studies illustrating the same conclusion. Even former FTC official Robert Pitofsky, whose approach to advertising in general (including the possibility of its having anticompetitive consequences) is significantly more critical than that of most of the other contributors, concedes (p. 130) that "in most market settings" advertising is in fact "essential to the maintenance of effective competition."

ENTREPRENEURIAL

This reviewer finds these discussions both valid and valuable. The case for unhampered advertising which these discussions tend to support can, he would however maintain, be presented with even greater cogency as soon as the entrepreneurial character of advertising activity is adequately perceived. This aspect of the matter seems not to have been recognized by the contributors to this volume, although Brozen does make brief reference (p. 101) to "the Austrian analysis of the competitive process," exemplified by Hayek and others.

Recognition of the entrepreneurial character of advertising arises from the insight that the difference between a consumer who is ignorant concerning an attractive market opportunity, and one who in fact grasps such an opportunity, need not consist in the absence of access for the former consumer to information possessed by the latter. It may be that free literature concerning the opportunity is lying in easy-to-read format on the former's desk, but that his unawareness of even the possibility of such an opportunity extends to the point that he lacks any alertness whatsoever to possible news of its existence—so that the free, easy-to-read literature is not even noticed. Viewed in this perspective, consumer ignorance calls for business to furnish more than a demanded good called "information",—it calls for business to take entrepreneurial initiative on behalf of the consumer and ensure that the unalert consumer does actually absorb the available information. Clearly this will involve the packaging of information in hard-to-miss form, in messages whose color, whose capacity to intrigue, to shock, or to amuse, whose pervasive presence, make it nearly inevitable that ignorant consumers will notice and pay attention to them. Competition for consumer patronage must, from this perspective, include competition with respect to the persuasiveness and the attention-grabbing character of the messages projected to those who, if only they knew, might benefit from the availability of the advertised good.

Seen in this light, the relationship between an advertised good, and the information concerning it which is contained in advertising, is more subtle than that between a coat and its buttons (which Telser, p. 38, cites as an appropriate analogy). It is not absurd to discuss the strength of demand for a buttonless coat. But it may indeed be meaningless to think of the strength of consumer demand for a good of whose very existence the consumer is ignorant. Competing advertisers are competing producers (in the sense that without their advertising consumers are in fact effectively barred from market access to products—even if these are already physically present). The taste-changing aspects of advertising must, then, surely appear decidedly less sinister once it is recognized that consumer sovereignty can never mean anything but the anticipation by producers of what the pattern of consumer tastes will be after products have been placed before consumer eyes (i.e. after taking into account the possibility that alternative processes of production may themselves influence tastes in alternative ways).

Recognition of the degree to which advertised information is inseparable from the total opportunity offered to the consumer, can only underscore the sense in which advertising is an essentially competitive activity. Deceptive advertising, in this perspective, must mean the injection into a total productive effort by a producer, of elements which, while initially encouraging purchase, must sooner or later fail to prevent the consumer from regretting his purchase. Clearly deceptive advertising is only one example of such a possible element. Consumers generally learn early in their lives that opportunities that initially appear glitteringly attractive may turn out to be disappointing—and this lesson, unfortunately, is driven home again and again in later years. It is not clear why—legal considerations of fraud aside—deceptive advertising differs categorically from this pervasive feature of human existence. Nor, as contributors to this volume recognize, is it clear why the deliberate exploitation by producers of such possibilities is likely to redound to anything beyond their short run profit.

At one point in his paper Telser italicizes the assertion: "The methods of promotion respond to the characteristics of buyers." While Telser makes his assertion in the context of one specific issue, we may take it as in fact the theme central to the whole controversy surrounding the social role of advertising. What the critics of advertising have failed to understand is that advertising, like all producer activity, tends, for better or for worse, to be governed by market forces reflecting consumer preferences. This volume makes valuable contributions towards providing such understanding.

Israel Kirzner studied economics under Ludwig von Mises. He is currently professor of economics at New York University. His latest book is Competition and Entrepreneurship.