The role of advertising in the market process: a survey

Franklin G. Mixon jr


The positive role played by advertising in the market process has been largely ignored by academic economists. It is only recently, since the modern economic revolution, that economists have realized the benefits of advertising and have joined the research agenda developed by researchers in marketing and other business fields. The present survey details the literature that examines the role played by advertising in lowering the 'full price' to consumers which allows consumers to maximize utility and allows the producers/retailers to maximize profits. The review begins with the seminal article by Stigler in 1960 which develops a (now famous) theory of the economics of information. Nelson's characteristics of goods and services are surveyed along with the extensions of other economists to the classification frameworks of Nelson and Porter. The survey follows the development of the theory of advertising in economics to the present day, and provides recent theoretical advances as well as empirical tests of these seminal theories.