Commercial advertising is a pervasive force in contemporary society. Each day, we are bombarded by advertisements from companies persuading us to buy their products and services on television, billboards, radio stations, magazines, newspapers and other media. The effects of advertising on social behavior are profound and myriad, influencing how we allocate, price and produce virtually all consumer goods. Detractors and proponents of advertising offer different perspectives on the impact of advertising on society.
Arguments Against: Misuse of Resources
Detractors of advertising note its wastefulness as measured by financial spending. Since the 1940s, advertising as a percentage of gross domestic product in the United States has hovered around 2 percent, exceeding $200 billion per year after the turn of the twenty-first century. Unlike, say, an entrepreneur who opens a manufacturing facility to produce widgets, advertising expenditure does not directly translate into the production of goods and services. Critics argue that it is not a necessary factor of production.
Arguments Against: Monopolies
Another criticism of advertising is its role in encouraging harmful monopolies. When companies embark on advertising campaigns, they promote their brands with the goal of engendering brand loyalty. This has the effect of limiting competition as it is more difficult for entrants with fewer financial resources to convince consumers to try their products and services. The end result, critics argue, is that consumers become less price sensitive, enabling companies to raise prices and extract abnormal profits.
Arguments in Favor: Lower Prices
Proponents of advertising cite studies that demonstrate that advertising leads to lower -- not higher -- prices. In a study of optometrists in the United States, Lee Benham found that eyeglass prices were lower in states that permitted advertising as compared to states where it was banned. The rationale is that advertising leads to increased competition within an industry, particularly when prices are explicitly referenced in the media.
Arguments in Favor: Product Quality
Brands provide valuable information to consumers about the quality of branded products and services. While an unscrupulous company might reap greater profits by lowering product quality in the short run, poor customer satisfaction in the long run is ultimately uneconomical. Consequently, companies with branded products tend to implement quality assurance measures to safeguard their franchise and meet customers' expectations. In the absence of branding and advertising, companies would have less to lose and their products and services would suffer.
Giulio Rocca's background is in investment banking and management consulting, including advising Fortune 500 companies on mergers and acquisitions and corporate strategy. He also founded GradSchoolHeaven.com, an online resource for graduate school applicants. He holds a Bachelor of Science in economics from the University of Pennsylvania, a Master of Arts in English from the University of Hawaii at Manoa, and a Master of Business Administration from Harvard University.