Saturday, August 2, 2008

The Role of Advertising in Free Markets

Alice Flynn, who works for a yellow pages publisher, responded to my previous appends on the evils of advertising by saying the following:
Advertising helps people find what they need. I have also seen the manipulative use of advertising, as we all have, by political campaigns, cults, con artists and quacks. But please, be reasonable. It is not advertising in itself, which is basically communication, that is the problem. Any tool can be used for good or evil.

She has a reasonable point, but let me digress a little to discuss the role of advertising in a truly free market. When I took my economics classes in college, I remember a long series of "proofs" that a truly free market would allocate goods and services in a highly efficient way in order to satisfy our needs and desires. Then, the course took a long look at the unstated assumptions needed for this to be true. One of them was that people always acted as informed rational consumers. As an illustration of how far this assumptions is from being true, the professor stated that if this assumption were accurate, advertising as we know it would not have any effect and would not exist. All that we would have are basic "yellow page" type ads offering information on goods and services available with contact information for the company.

So in a sense, I agree that with Alice Flynn that there is clearly a place for such informative type of advertising. But I stand by my argument that most of the advertising we are exposed to on TV, radio, and to a lesser extent in magazines and newspapers tends to be highly manipulative. If we were acting in our own best interests in the way free market theory says we should, we would do our best to limit our exposure to such advertising.

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