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Commercial Advertising causes Economic Distortions

At its simplest advertising may ensure buyers are aware of possible purchasing options, such as a shop sign describing the type of products and services available. Given the free market model's promise of optimal outcomes is based, in part on the assumption that economic actors have full knowledge of the choices before them, it might seem that advertising is an essential step to ensuring these optimal outcomes. Unfortunately it ain't necessarily so!

The Problem

The problems are that 1. advertising is not balanced in terms of informing about all the options, and 2. advertising moves beyond information to attempts at persuasion and building of an emotional attachment to the product or service beyond the rational assessment assumed in the free market model.

Commercial advertising tends to focus on persuasively conveying the benefits, explicit or implicit or even imagined, of, and building a want for, the products or services of the entity paying for it. Not at all surprising, neither is that advertising grew sharply at the same time as mass production - winning more consumers via advertising allowed greater economies of scale in production.

While the free market model's delivery of optimal outcomes rests on a number of arguable assumptions, the model is nonetheless the foundation of the largely self-regulating freedom of action that is common in most modern communities. It seems worthwhile to try to diminish the distortions that departures from some of the assumptions might cause. The distortions are economy wide - leading to poor macro purchasing and production decisions - economy wide waste or lost opportunity.

Part of the distortions caused by commercial advertising is due to the unrealism of the "rational economic" person assumed in the free market model. Many consumers neither have the information or the aptitude to make an informed rational decision amongst available choices. Even if consumers had the full information there would still be many who would seek comfort in following the leads and recommendations of others rather than undertake their own decision making process. So in part any proposal to minimise the distortions caused by commercial advertsising also has to recognise problems with the assumptions about rational economic behaviour.

These are not separate issues. The tendency of commercial advertising to want to build a need or want for a product or service often utilises the herd instinct or other emotional aspects/pschological needs.

The Proposal

  1. Recognise that advertising is part of a free dynamic and innovative economy, and that the goals are to encourage more rational decision making with more complete information - with controls on advertising only when the public costs of the product or service are not being factored into the commercial production or purchase decisions (such as tobacco, alcohol, gambling...).
  2. Facilitate easier access to reference information via the internet though independent fora and information portals, where producers (more than marketers) are encouraged to contribute information and answer questions in a more rational and two way engagement between buyers and sellers.
  3. Encourage more informative and less emotive "want inducing" advertising by more independent public reviewing of  advertisements, including a rating by the public of advertisements (major ads in any media) on such an information to emotional want creation scale.
  4. Fund these public facilitation initiatives through a charge on major advertising campaigns that are assessed to be other than information driven.

Last Updated on Wednesday, 16 May 2012 00:40

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