the impact of media and advertising on product demand, market share, and social welfare

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The Impact of Media and Advertisingon Product Demand,

Market Share, and Social Welfare

Dr. Mohammad SelimRoyal University for Women - Kingdom of Bahrain

Abstract:

Media and advert ising play vit al role in creat ing product demand and

market share. It also impact s the social welfare of t he societ y. Media

connect s t he consumers by highlight ing t he versat ile charact erist ics

of t he product s t hat consumers may not know them before. Media

and advert ising creat e an urge for t he products and consumers

are virt ually on t he search for such product s unt il they can act ually

consume and t est t hem. Advert ising t he product s and servicest hrough media and informat ion t echnology is as revolut ionary as

indust rial revolut ion in the past . Now in new millennium, even a

t iny firm or a small count ry can use such techniques of advert ising

through dynamic media and information technology and can

advert ise across t he globe in a mat t er of seconds. Firms or count ries

which were unknown before and had hardly any imprint or impact

on global market place, now creat ing enormous demand for t heir

product s and services through media and informat ion t echnology.

The impact of t echnological revolut ion in media and advert ising

contributed a great success in boosting the demand for both

t radit ional and non-t radit ional goods and services, including t ravel

and t ourism, educat ion, medical t reat ments, ent ert ainment and

a host of ot her goods and services. Everyt hing is happening so

fast t hat many firms and count ries are facing const raint s t o match

t he supply wit h unprecedented demand response. In t he world of

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different iat ed product s and imperfect compet it ion, among all the

product s with similar qualit y and standard, obviously t he product

wit h media exposure will be picked up first , market demand for such

product s will soar, and event ually t he market share will expand.

It is perceived that advert ising through media and informat ion

t echnology has relat ively greater impact in GCC count ries. Whet her

it is new real est ate development or Formula 1 race events, the

cont inuous advert ising t hrough media and informat ion t echnology

is creat ing instant aneous results and t he soaring demand for t he

product s and services. As a result , t he product s and services are soldout in mat t er of hours or days. This is indeed creat ing an enormous

challenge as well as opport unit ies for t he firms and nat ions.

However, when advert isement s are unchecked and unregulat ed,

false claims, exaggerations, fabrications very likely to occur and

social welfare will suf fer. This paper invest igates how t he media and

advert ising will impact on t he product demand, market share, and

social welfare when advert ising in media out lets will be checked for

accuracy, qualit y commit ment and for maximizing social welfare

by encouraging ‘public good’ aspect of advert ising and minimizing

‘public bad’ aspects through appropriate legislative and fiscal

measures.

JEL Classificat ion: M31, M21, M37, M38, D11Key words: Advert ising, Media, Direct -t o-consumer advert ising,

‘Public Good’ , ant i-advert ising, ‘Public Bads’ Repet it ive advert ising.



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Introduction:

Every week, billions of dinars are spent on advert ising and it is one

of t he most powerful forces for good or evil. It is considered good

because media and advert ising have posit ive impact on market

demand, sales and market share. McGuinness and Cowlling (1975)

showed t hat advert ising had posit ive and st at ist ically significant

impact on sales. Duff y ( 19 91 ) found t hat advert ising has impact on

t he composit ion of aggregate consumer demand. It is considered evil

because billions of dinars are wast ed just t o sell the same product sand services by misleading consumers and misallocat ing resources.

It is even more serious when the burden of such exploit at ion are

borne by t he very vict ims – t he consumers and t ax payers who have

been already suff ered because of such imposed advert ising war on

them.

For introducing a new product, manufacturer may resort to

advert ising campaign, slot t ing allowance and aggressive media

coverage for t heir product s. Desai (2 000 ) observed t hat advert ising

allows new manufact urers t o ent er int o t he market .

In this perspective, advertising allows a new manufacturer to

int roduce the newly produced product or service. It is definitely,

an advantage and important tool that can be explored for the

int roduct ion of t he product s and services. In such ways, each and

every new producer will enjoy enormous opport unit ies to get intot he market and reach out t he consumers.

Global market ing, advert ising and int ensive media coverage oft en

shift s t he demand curve for a product or a service to t he right and t he

firms ent er int o domest ic and foreign markets. Most mult i nat ional

firms market t heir product in the global market and advert ising play

a very import ant role in securing market share in local and global

markets.



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Advert ising changes the st ruct ure of t he economy. Muller and Hamm

(1974) have found that the structure of the economy changes

and concent rat ion t ends to increase rapidly with high advert ising

intensit ies. Such findings reveal that advert ising is one of t he single

most powerful t ool in shaping consumer demand, product ion

st rategy, and market power.

Repet it ive advert ising creates an appeal t o t he consumers and

increases sales. Ehrenberg (2 000) believes that advert ising

has extraordinary power, and in most time, it is effective. Suchext raordinary power if unleashed t o t he consumers who are oft en

not well informed about t he different feat ures of t he product or

service, t hey may easily be exploit ed. In such cases, consumers can

be vict ims if t he claims of advert isement are not verified, challenged

and approved. Oft en we may leave t o t he market forces t o correct

such negat ive ext ernalit ies, but in realit y, advert ising in diff erent

media out lets are similar t o f raming, where advert isers only want

t he consumers t o know exact ly what advisers want t o port ray. In

such unchart ered t errit ory, consumers are helpless, misled, and

in many cases, suf fer in the long run. There must be an agency wit h

appropriate power, transparency, and they will be dedicated to

defend and prot ect t he public interests and help maximizing social

welfare of t he nat ion.

The paper is organized in the following manner. The effects ofadvert ising harmf ul goods and services, of t en called ‘public bads’

are out lined in sect ion 2. In addit ion, t he impacts of ant i-advert ising

are also addressed. Sect ion 3 focuses on t he negat ive impact of

direct -t o-consumer advert ising. Sect ion 4 addresses t he issues

of ‘Public good’ and ‘Public bad’ aspect s of advert ising. Sect ion 5

examines advert ising cost s and it s impact on profit and net income.

Sect ion 6 out lines overlapping nature of ‘public good’ and ‘public

bad’ aspects of advert ising. Sect ion 7 highlight s advert ising, media

coverage, and elect ion result s. Sect ion 8 establishes necessary and



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sufficient condit ions for maximizing social welfare of advert ising.

Concluding remarks are summarized in sect ion 9 .

The Ef fect s of Advert ising Harmful Goods and Services

versus Ant i-advert ising:

Advertising of cigarettes, alcohol, and fast food often attract

young cohort of t he populat ion and it s impact could be devastat ing.

The demand for such harmful products of t en increases if t here is no

negat ive advert ising, cont rol, legislat ive laws, taxat ion, or penalt ies.It is most likely t hat in absence of such cont rol, it will creat e healt h,

safet y, and social problems for every dinar increase in advert ising

costs for such ‘public bads’ or harmful product s.

The Impact of ant i-advert ising, such as smoking cause cancer and

ot her heart diseases and complicat ions could be a very import ant

t ool in minimizing negat ive impact of t obacco relat ed epidemics.

McGuinness and Cowlling (1975) emphasized that publicity and

advert ising about negat ive health effect s of smoking, oft en called

‘ant i-advert ising’ reduces consumpt ions of cigaret t es. Similarly,

by employing ant i-advert ising on any product or service t hat impact

negat ively on healt h, safet y and general welfare of t he people can

yield posit ive benefit s and well being to t he societ y. An appropriat e

public policy must be designed along with t he taxat ion syst em

which will set rules for what is allowed and what is not allowed fromt he societ y’s points of view. It can be enforced t hrough st rict law,

built -in incent ives, t axes and penalt ies depending on t he nature of

t he goods and services.



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The Negat ive Impact of Direct -t o-Consumer Advert ising:

Direct - t o- consumer advert ising in healt h care, such as drugs, and

t he pat ient s’ insist ence on prescribing cert ain highly advert ised

drugs leaves no choice for the doctors but to prescribe those

drugs when Medicare is privat ely funded rat her publicly prov ided.

Calfee, Winston, and Stemski (2002) estimated the impact of

direct -t o-consumer advert ising and t he demand for cholesterol-

reducing drugs are stat ist ically significant compared t o ot her form

of advert ising. The demand for such drugs sky rocket s when drugmanufacturers engage in direct -t o-consumer advert ising rat her to

healt h care providers.

Gilbody, Wilson, and Wat t (20 05 ) have demonst rat ed t hat direct -

t o-consumer advert ising leads t o increased prescript ion of t he

advertised product. Patients often request for exact drugs and

physicians just compromise in prescribing those drugs. In ot her

words, pat ient s are led to believe the ef fect iveness of cert ain drug

t hrough professional advert ising skills. In such cases, any decept ion

of any form on the part of the advertisers of pharmaceutical

companies about t he ef fect iveness of certain drugs may cause

over use and over prescript ion of t hose drugs over ot her relat ively

more useful drugs. Pat ient s of t en believe t he advert isers more t han

t hey do t o t heir family doctors. It is not unusual t hat pat ients may

even exaggerat e t he condit ions and sympt oms just because t heywant t he prescript ion for t hose advert ised drugs in any means. Such

unfort unat e effect s of advert ising are t aking place simply because

t here is no such eff ect ive wat ch dog or agency which can verify

t he claims and can exact ly rewrit e the cont ent of advert isement s.

Wit hout such prot ect ion, good drugs will be ignored; inappropriate

drugs will be prescribed and t he societ y will cont inue t o suff er unt il

such regulat ions are in place. One cannot expect any benefit s of

such biased prescriptions of inappropriate drugs resulting purely

f rom advert ising urge and ignoring physicians’ sound judgments.



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Jagsi (2007) examined similar cases of conflicts of interest and

t he physician-pat ient relat ionship in t he era of direct - t o- pat ient

advertising. Such conflicts of interest often yields sub optimal

out comes in healt h care sect or, jeopardize pat ient s’ safet y, proper

pat ient t reat ment , disease cont rol and event ually reduce life

expect ancy of t he populat ion.

St ange (2007) analyzed doct or-pat ient and drug company-pat ient

communicat ion t rends. It has been observed t hat direct t o pat ient

advert ising has reversed t he communicat ion channel f rom doct or –pat ient t o rather drug company-pat ient , and as a result , pat ient s

are prone t o responding advert isement s of t he drug companies

and oft en at t empt t o ignore doctors’ advice. If such advert isement

cont ents are exaggerat ed, manipulat ed, or even fabricated,

t he pat ients will be vict imized and t he cost t o t he societ y will be

enormous unless t he societ y and policy makers come forward with

appropriate cont rol and screening measures. These are essent ial

for prot ect ing t he consumers’ right s and int erest s in a f ramework

where most consumers are unaware of long t erm consequences of

t reat ing with inappropriat e or even wit h complet ely wrong drugs.

Public Good versus Public Bad Aspect s of Advert ising:

When radio st at ions and TV channels do not charge the consumers

for good programs, it is oft en considered public good while cablenet works charge pay-per-view is considered private good.

Advert ising for f ast food for kids and young adults are highly

effect ive especially during children shows. Any ban on such

advert isement is expect ed to curb the number of obesit y, healt h

complicat ions, diabet es and overweight kids. This is also t rue for

young as well as for older populat ion. Advert isement s for soft drinks

oft en lead t o addict ion t o soft drinks in st ead of f resh wat er which

in turn oft en creates long run side effect s on health and well being.



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The consumers must be informed about t he short run and long run

side effect s of all advert isement s and, especially t he ef fect s of over

consumpt ion or addict ion for part icular product or service.

Advert ising Cost s and it s Impact on Profi t and Net Income:

If one firm advert ises it s products, t he rival firm will follow t he same

so t hat t he second firm can ret ain its market share. If t here are n

number of rival firms, it is most likely t hat all firms will engage in

advert ising in dif ferent media out let s including t he dist ribut ion offlyers in every weekends, TV and radio commercials, newspapers,

bill board, promot ions, websit es, instant messaging on SMS,

magazines, etc. Almost all the economic agents, entrepreneurs,

educat ion and service providers, polit ical leaders, milit ary st rategist

engage in advert ising, f raming and media coverage in one form

or ot her. Consequent ly, t he societ y as a whole incurs billions of

dinars of advertising expenses in every week and unfortunately,

t he incidence of such lavish ext ravaganza befalls on t he consumers

and t ax payers. When all firms engage in advert ising, t he pay-of fs

for each firm will dwindle. If t hey can find some sort of consensus

where all t he firms can refrain from advert ising campaign, it is most

likely t hat most firms will end up wit h great er pay-of fs. In imperfect

market place, such consensus is most unlikely but t he government

can coordinat e a syst ems of arrangements under which unfair

and unfounded claims of market ing st rategy can be minimized byincorporat ing and disclosing t he negat ive feat ures of each product

and service. In ot her words, when firms will engage in market ing, it

will be required t o each firm t o provide full disclosure about negat ive

aspect s of t he products and services. As a result , many fi rms will

choose not t o advert ise because consumers may reflect more on

negat ive aspect s of t he product rather t he posit ive aspect s. When

many firms will ref rain from advert ising, it is most likely t hat t he

advert ising war will die down and enormous cost of advert ising can

be passed on t o t he consumers, t ax payers and even to t he producers



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and sellers in the form of higher profit s which in t urn will increase

investment spending, employment , out put and prosperit y.

Overlapping Nat ure of ‘Public Good’ and ‘Public Bad’

Aspect s of Advert ising:

Advertisement for vacation, tourism, sports and fun activities

have bot h ‘public good’ aspect s as well as ‘public bad’ aspect s.

When vacat ion, tourism, sport s and fun act ivit ies are designed t o

promot e knowledge, enhance mut ual understanding of nat ions oreven for enjoying holidays, and good health, it may foster mut ual

f riendship, economic, social and cult ural cooperat ion. Wit hout

st reamlining such indust ry, it may easily f all int o ‘public bads’ and

t he people will suff er. The social cost may exceed the social benefit

when advert ising of product s and services are unchecked and do not

follow t he values, norms, hopes, and aspirat ions of t he societ ies.

Cert ain t hings are definit ely ‘pubic bads’ in advert ising as ment ioned

above. However, by maximizing welfare cont ents or ‘public goods’

aspect s of advert ising such as early screening for cancer and serious

diseases, healt hy f ood choices, exercise and involvement in wellness

program, spreading 10 0% quality educat ion and healt hcare for all,

encouraging good behavior and kindness to all, for being honest ,

sincere, and hardworking, paying at t ent ion to rare species, reducing

wast e and prot ect ing environment can play a significant role insust ainable development and media can play a crucial role.

Advert ising, Media Coverage and Elect ion Result s:

Advert ising and media exposures also af fect elect ion result s, and,

t herefore, free and judicious choices of t he people are dist ort ed

and result s are biased t owards campaign advert ising. As such, t he

elect ion result s in modern democracies are quest ionable because

advert ising and media campaign may sway away t he public opinion



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and the lobbyist group can easily manipulat e and choose who will be

elected and who will not .

Condit ions for Maximizing Social Welfare of Advert ising:

The necessary condit ion for maximizing social welfare is t o increase

sales, out put , employment , and income by increasing advert ising in

media out lets for bot h goods and services of desirable natures, and

all new and est ablished manufacturers, sellers, and service providers

will have access to such powerful t ool of market ing for bot h localand global market places. The sufficient condit ion is t o check by

appropriate agency for accuracy of contents of advertisements,

qualit y of product and services, commit ment of on t ime delivery,

guarant ee and ‘no quest ions ask’ ret urn policy.

Concluding Remarks:

No doubt, advertising is one of the most important tools of

increasing market demand for goods and services, and for increasing

market share in all sect ors of t he economy. However, advert ising in

t he media out lets has become an import ant public policy issues in

modern t imes. It is very important t hat government officials must

out line the advert ising policy, t he cont ent verificat ion whether t rue

or false, qualit y issues, healt h and safet y requirements, prevent ion

of f raud in t ransact ions, commitment of exact delivery of goodsand services, and fair return policy. Such precondit ions are t he

cornerst ones of guarant eeing the welfare of t he societ y. Unchecked

and f raudulent advert ising not only jeopardize public int erests,

it will also entail enormous economic, social and emot ional costs

t o t he societ y. Regulat ing and monit oring advert ising and media

coverage may also guarant ee the qualit y, commit ment , durabilit y,

and perfect ion of t he product s and services in the long run. At least

t he sellers will be held account able for many goods and services, and

t heir act ions will not go unchallenged. Such enforcement s may slow



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down short run economic growt h but it may lead t o steady st at e long

run sustainable growt h for t he economy where all economic agents

are expect ed to benefit .

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the impact of media and advertising on product demand, market share, and social welfare

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