Public cost of advertising

Posted by Alexander Ginzburg on September 3, 2007
Filed Under Advertising |

In most markets the majority of businesses advertise. No one of the parties can stop due to the fear of losing a share of the market to the competitors; consequently they keep doing it just to maintain the status quo. Since those costs become inevitable, they cause to a raise in product’s price and by that way are entirely passed to the consumers. At the end of the day, every time we put a coin in a vending machine we pay for all the silicon plants and all the steroid shots that make those men and women so happy in Coke’s commercials. Furthermore, some firms use those advertisements, which are paid with our money, to create brands that distinguish their products from the competitors’. Although this distinction is artificial and mostly based on illusions, it enables them to charge additional payment for the seeming value of the brand. For instance, Coca-Cola used the extra money charged from it’s customers for advertising to create a 70$ billion worth brand (more than a half of its whole value). The meaning of this is that Coca-Cola charges its customers for extra 2$ billion annually for advertising in order to maintain a brand that will allow it to charge them for another extra 70$ billion in the long run. Is there an alternative?