A New Economic View of Advertising

Abstract

This paper takes a view of advertising and an aspect of certain other non-price competition as public goods. This leads to a new fundamental justification of the zero price distribution of advertising coupled with a mark-up of the advertised good as a disguised form of price discrimination which approximates that required for efficient pricing of a public good. Further, a numerical counter-example is presented wherein the commonly-observed zero price distribution of advertising is shown to lead to higher consumer and seller welfare than its separate sale at cost.