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The Case for Product Differentiation and AdvertisingSome economists (and most advertising professionals) believe that advertising responds to the desires of a society. For example, if people want to surf the Web faster, then Intel spends time and money to develop a faster processor and launches an advertising campaign to let people know that they have met this need. People have nearly unlimited desires for new and different goods and services. The greater the variety and choice, the more likely each person can find the goods and services that will maximize his or her own personal utility. If there are many different companies making the same type of good, competition between them will cause each of them to innovate and cut costs, thus creating a better and less expensive product. Proponents of advertising also argue that it leads to more informed consumers. The more information consumers have, the more competitive the markets become, and thus, the more markets move towards efficiency. Product differentiation is seen as leading to efficiency as firms compete with the quality of their products. The Case Against Product Differentiation and AdvertisingAre more choices better? Some economists believe that advertising creates desire instead of responding to it. Do we really need over a hundred different types of breakfast cereal? Some argue that there is already too much choice in our society, and advertising convinces people that they need something that they truly never needed before. Were peoples’ lives incomplete until the clapper was invented? Has society become obsessed with consumption? Besides the philosophical concerns about advertising, some economists have noted that advertising increases the costs of production and is often such a large portion of the costs of participating in some markets that it actually serves as a barrier to entry. Another social cost of advertising is that prevents people from doing more productive or desirable things. No Right AnswerMany questions have no right answer; there are strong arguments on both sides of the advertising debate, and even the empirical evidence leads to conflicting conclusions.
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