Advertising as Information: Further Evidence

Abstract

In the past 30 years, the economics of information has become an important feature of the revolution in modern microeconomic theory. The seminal literature includes theoretical advances by Stigler [10], Nelson [7; 8], Spence [9], and Darby and Karni [1]. In an original approach, Laband [3] tests the proposition that the supply of product quality signals increases with a rise in the expected marginal return to consumers utilizing Yellow Pages advertisements in various urban settings. In later expositions, Laband [4; 5] provides further evidence of the durability of the informational content and the differences in information provision of television and commercial advertisements for different types of goods. The present paper extends and provides alternatives to Laband's tests of the impact of time costs (faced by consumers) on the informational content of advertising. This study employs a supplementary category (to Laband's) of credence goods developed in the literature [2; 6], and analyzes the impact of income as a proxy for time and information costs with a unique, intra-city data set from New York City and Los Angeles.