This is not intended as a defence of the quantity of advertising that you’re describing, or even to say that there’s not better ways that these goals might be achieved, but this in particular got me thinking of how it might fall down:
“Advertising is a zero-sum or even negative-sum game.”
I think there are at least 2 things going on here.
One is that it might be helpful to draw a distinction between well-known product categories with minimum differentiation and more innovative products. In the case of laundry powder, the brands are just jostling for relative position, you’re going to be buying some form of laundry powder either way, and it’s just about who gets that money. That seems to fit your zero sum situation. But sometimes there are entirely new products and (at least in theory) those consumers who choose to buy them presumably do so because they think that the value they’ll get from them is greater than or equal to the cost that the supplier is charging. “Ooh, that movie looks like it’ll give me £20 of joy and they’re only charging £10 for the cinema ticket, so I’ll go.” In that case the informational value of an ad for the new product is telling the consumer how they can buy something that’s a net benefit.
The other thing is that even in the undifferentiated product case, the advertising is paying for branding. And (again, in theory) the branding potentially has some value to the consumers. It gives suppliers more to lose. Say that there’s a way to adulterate laundry powder with something that fills the box cheaply but has the unfortunate side effect of dissolving clothes. If you’re ‘Anonymous White Box Laundry Inc.” then you might be tempted to use this adulterant. If you get caught, you’ll just start again next week as ‘Anonymous Beige Box Laundry Inc.’. But if you’re a big brand name laundry powder, you’ll steer clear of that since the loss of future sales is far more costly than the savings from using the adulterant. To the extent that advertising builds brand awareness, it can in theory have value to consumers who can pick suppliers who have more to lose by not living up to a reputation for reasonably high quality products.
Agreed, this seems a critical flaw in the post’s argument.
Ads are not always zero-sum or negative-sum games.
Intuitive example: I see an ad for a new shoe I was unaware of. It sounds interesting to me and I buy it. I like it and my life is better for having this better shoe. As a result, the world is better off: I got a better shoe that I value more than the old shoe I was wearing, holding constant that I was going to pay money for shoes and am choosing between similarly priced options.
This even holds for things I already knew about but didn’t reconsider.
Intuitive example: For historical reasons I believe car X to be poor quality. I see an ad extolling the recent changes in car X to be higher quality. I do some further research and learn car X is in fact better than it used to be. So I learned something new thanks to the ad and can now make better decisions.
Ads are a way of paying to prioritize information.
the branding potentially has some value to the consumers. It gives suppliers more to lose.
Thanks for bringing this up. I wrote this post largely as a way to gather feedback on my perceptions of the role of advertising, and this is a good example of something I wouldn’t have otherwise thought of.
After thinking about it a little more, though, I’m still not convinced advertising solves this problem. For example, even if no detergent brands were well-known, I would buy detergent without worrying about its quality. The store that sells it to me has its own reputation at stake. Even a store that doesn’t advertise has a brand, because of its physical presence and the ability for word-of-mouth to spread in its local area.
Online, there is more reason to stick with established brands. There is less accountability for the platform that directs you to low-quality brands, and scams or low-quality products are thus more common. Trust systems like reviews try to alleviate this, but they are quite often gamed. But in a world without advertising, e-commerce platforms would still have to avoid a reputation for hosting scam or low-quality sellers. I doubt this hypothetical world would have worse product quality across the board, due to the need for platforms to protect their own reputations. (Perhaps more, because brands would have to lean more on their quality and less on their marketing to gain popularity, though I would hardly guarantee it.)
This is not intended as a defence of the quantity of advertising that you’re describing, or even to say that there’s not better ways that these goals might be achieved, but this in particular got me thinking of how it might fall down:
I think there are at least 2 things going on here.
One is that it might be helpful to draw a distinction between well-known product categories with minimum differentiation and more innovative products. In the case of laundry powder, the brands are just jostling for relative position, you’re going to be buying some form of laundry powder either way, and it’s just about who gets that money. That seems to fit your zero sum situation. But sometimes there are entirely new products and (at least in theory) those consumers who choose to buy them presumably do so because they think that the value they’ll get from them is greater than or equal to the cost that the supplier is charging. “Ooh, that movie looks like it’ll give me £20 of joy and they’re only charging £10 for the cinema ticket, so I’ll go.” In that case the informational value of an ad for the new product is telling the consumer how they can buy something that’s a net benefit.
The other thing is that even in the undifferentiated product case, the advertising is paying for branding. And (again, in theory) the branding potentially has some value to the consumers. It gives suppliers more to lose. Say that there’s a way to adulterate laundry powder with something that fills the box cheaply but has the unfortunate side effect of dissolving clothes. If you’re ‘Anonymous White Box Laundry Inc.” then you might be tempted to use this adulterant. If you get caught, you’ll just start again next week as ‘Anonymous Beige Box Laundry Inc.’. But if you’re a big brand name laundry powder, you’ll steer clear of that since the loss of future sales is far more costly than the savings from using the adulterant. To the extent that advertising builds brand awareness, it can in theory have value to consumers who can pick suppliers who have more to lose by not living up to a reputation for reasonably high quality products.
Agreed, this seems a critical flaw in the post’s argument.
Ads are not always zero-sum or negative-sum games.
Intuitive example: I see an ad for a new shoe I was unaware of. It sounds interesting to me and I buy it. I like it and my life is better for having this better shoe. As a result, the world is better off: I got a better shoe that I value more than the old shoe I was wearing, holding constant that I was going to pay money for shoes and am choosing between similarly priced options.
This even holds for things I already knew about but didn’t reconsider.
Intuitive example: For historical reasons I believe car X to be poor quality. I see an ad extolling the recent changes in car X to be higher quality. I do some further research and learn car X is in fact better than it used to be. So I learned something new thanks to the ad and can now make better decisions.
Ads are a way of paying to prioritize information.
Thanks for bringing this up. I wrote this post largely as a way to gather feedback on my perceptions of the role of advertising, and this is a good example of something I wouldn’t have otherwise thought of.
After thinking about it a little more, though, I’m still not convinced advertising solves this problem. For example, even if no detergent brands were well-known, I would buy detergent without worrying about its quality. The store that sells it to me has its own reputation at stake. Even a store that doesn’t advertise has a brand, because of its physical presence and the ability for word-of-mouth to spread in its local area.
Online, there is more reason to stick with established brands. There is less accountability for the platform that directs you to low-quality brands, and scams or low-quality products are thus more common. Trust systems like reviews try to alleviate this, but they are quite often gamed. But in a world without advertising, e-commerce platforms would still have to avoid a reputation for hosting scam or low-quality sellers. I doubt this hypothetical world would have worse product quality across the board, due to the need for platforms to protect their own reputations. (Perhaps more, because brands would have to lean more on their quality and less on their marketing to gain popularity, though I would hardly guarantee it.)