On the Simple Economics of Advertising, Marketing, and Product Design
American Economic Review
vol. 96,
no. 3, June 2006
(pp. 756-784)
Abstract
We propose a framework for analyzing transformations of demand. Such transformations frequently stem from changes in the dispersion of consumers' valuations, which lead to rotations of the demand curve. In many settings, profits are a U-shaped function of dispersion. High dispersion is complemented by niche production, and low dispersion is complemented by mass-market supply. We investigate numerous applications, including product design; advertising, marketing and sales advice; and the construction of quality-differentiated product lines. We also suggest a new taxonomy of advertising, distinguishing between hype, which shifts demand, and real information, which rotates demand. (JEL D8, L1, M3).Citation
Johnson, Justin, P., and David P. Myatt. 2006. "On the Simple Economics of Advertising, Marketing, and Product Design." American Economic Review, 96 (3): 756-784. DOI: 10.1257/aer.96.3.756JEL Classification
- D11 Consumer Economics: Theory
- M31 Marketing
- M37 Advertising