Does Advertising Lower Consumer Prices?

Abstract

Critics of advertising maintain that advertising raises consumer prices by increasing manufacturers’ selling prices in several ways. Not only must the cost of the promotion be added to the product's cost, but by limiting entry, advertising leads to concentration and oligopolistic pricing. This article contends that even if these assertions are valid, advertising lowers consumer prices. A theory of the relationship between advertising and prices is presented and is illustrated by data from the marketing experience of the toy industry.