Advertising and Ideas as Consumption Goods

The way that economists think about advertising is somewhat mystifying to me. Now, I’m a first year grad student in economics so I may be ignorant of debates that have happened already. But, from what I’ve come across in papers and talking to other students it seems there are two ways economists look at advertising. One idea is that advertising provides information or product differentiation to consumers and the second is that advertising is a complement to the good. To expand on complements I’m going to reference a Tyler Cowen post…

As I understand Becker’s work (with Kevin Murphy) on the topic, individuals consume “social images” or “self-images.” Having Nike shoes gives you the “benefits of being cool” if a) you actually have Nikes, and b) the ad links Nikes to a cool image for your relevant peer group. The standard economic theory of complements then applies for analyzing ads. – See more at:

Some real life examples of the simplistic nature of economic conceptions of advertising/ideas are…

I’ve been going to a few economics seminars at GMU and have heard other graduate students/professors talk derisively about concepts like fair trade and local/slow food movements. For instance, I overheard two PHD students have a conversation around the idea that local food could never be as high quality as mass produced agribusiness type food. I thought, well it’s not necessarily true that mass produced food must be higher quality (it could be a trade off of quality for price for instance), but more importantly I thought they viewed the whole thing in the wrong way. The way they are viewing it and the way many economists also view it is they only think or care about final goods. These PHD students are saying local food is bad because it produces say an inferior orange to agribusiness’ higher quality orange. But, consumers don’t just care about the orange itself; they also care about how the orange was produced and the idea of local food. I think economists might challenge my claim and say that’s just product differentiation, but I think that misses the point. The way I view it consumers aren’t really consuming different types of oranges, they are actually consuming oranges plus the idea of local food regardless of the quality of the oranges. I reread a Chuck Klosterman essay, It Will Shock You How Much It Never Happened that is a much better written illustration of the point…

PespiCo Incorporated has interesting problems. Around the same time they were making Pespi less cynical, PepsiCo made a packaging change to another of their products, Tropicana Pure Premium orange juice. For whatever reason, PepsiCo changed the orange juice carton: Instead of an orange with a protruding straw, they featured the more literal image of a glass of orange juice. Immediately, orange juice drinkers lost their shit (not all of them, but enough to get attention). They were outraged; they could not believe that Tropicana had altered this essential image of an imaginary orange you could suck. A few weeks later, Tropicana switched back to the original design. This reversal was covered in the February 22, 2009, edition of The New York Times, and the angle of the story was that PepsiCo was dealing with its own version of Coca-Cola’s infamous 1985 introduction of New Coke. However, there was at least one major difference that was mentioned in the story parenthetically, almost as an aside
(There are, it should be noted, significant differences between the two corporate flip-flops. For instance, the Tropicana changes involved only packaging, not the formula for or taste of the beverage.)
The orange juice was the same. As far as I can tell, the size and shape of the container itself was also identical—the only alteration was the picture on the carton. People were appalled because the same product (at the same price) was being presented to them in a slightly different way. If you’re a person involved in the profession of advertising, this kind of scenario is the apotheosis of your vocation. It illustrates a rarified level of consumer appreciation: People aren’t just buying something because of the advertising—they feel like they are buying the advertising itself. An essential piece of what they desire is the image on the carton, even though that image is only there to get attention and inform you of what’s inside. It has nothing to do with juice. It almost never does. This happens all the time: LeBron James does not sell Nikes; buying Nikes allows people to buy “LeBron James” (and whatever that’s supposed to mean outside of itself ). That cliché has been understood by advertisers for generations, or at least since Michael Jordan killed off Converse in the eighties. But—right now, today—everyone knows that this is how the game works. So how can a trick work when everyone knows it’s a trick? Because the trick is the product.

That last two sentences basically encapsulate the idea. There might be a quibble in that Klosterman confuses advertising and branding as the same thing; still I think the point stands and a different story could be told about just advertising. If we were to think about local food, fair trade, and many other green products in this way (that consumers are consuming those ideas) then I think it makes a lot more sense why people make the choices they do. Consumers of fair trade might be wrong about the end results of buying fair trade (distributional income effects), but the same could be said on a whole host of dimensions on many products (homeopathic drugs, vitamins, therapy, AA, etc.) But, economists don’t see anything wrong when people buy emergen-c and think it will cure their cough; I am just saying consuming fair trade goods might be similar and that ideas are not just information or a complement. Advertising and ideas are goods in and of themselves.

Update: I forgot to mention that I have seen something a little similar to this idea in Virginia Postrel’s book The Power of Glamour: Longing and the Art of Visual Persuasion, but I haven’t had time to read it yet.

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