A simple, interesting, complementary fact is that the cigarette manufacturers all saw profits skyrocket when laws started banning cigarette ads on TV. All of their products are largely interchangeable, so advertising doesn’t tell you anything new about the product, it just builds brand loyalty. So it saves everyone costly signalling.
It’s also extremely difficult for new cigarette manufacturers to break into the market. It’s very hard to use a really clever ad campaign to increase your market share when you’re not allowed to advertise on TV. Curiously, this may actually harm consumers, in that it prevents competition from lowering cigarette prices. I suppose this analogizes to the idea that if everyone were suddenly banned from displaying their wealth, it would be very difficult to woo Helen of Troy unless you had clearly shown your wealth prior to the ban. Thus, banning signalling can lead to losses, as the wealthiest suitor may be unable to woo Helen if he came to the game too late.
A simple, interesting, complementary fact is that the cigarette manufacturers all saw profits skyrocket when laws started banning cigarette ads on TV. All of their products are largely interchangeable, so advertising doesn’t tell you anything new about the product, it just builds brand loyalty. So it saves everyone costly signalling.
It’s also extremely difficult for new cigarette manufacturers to break into the market.
I assume the existing cigarette manufacturers demand large profit margins for their products.
Why can’t new cigarette manufacturers enter the market with cheap product and gain some brand loyalty just by being there? (they won’t have to spend on costly advertising for that, since it is prohibited by law) Then they can raise prices or introduce premium versions of their product.
Because they can’t utilize economies of scale or amortize their fixed costs across as large a production run as the large established companies can. Unless the established companies are priced very far above their minimum marginal cost, the small company would be running at a significant loss to undercut them.
A simple, interesting, complementary fact is that the cigarette manufacturers all saw profits skyrocket when laws started banning cigarette ads on TV. All of their products are largely interchangeable, so advertising doesn’t tell you anything new about the product, it just builds brand loyalty. So it saves everyone costly signalling.
It’s also extremely difficult for new cigarette manufacturers to break into the market. It’s very hard to use a really clever ad campaign to increase your market share when you’re not allowed to advertise on TV. Curiously, this may actually harm consumers, in that it prevents competition from lowering cigarette prices. I suppose this analogizes to the idea that if everyone were suddenly banned from displaying their wealth, it would be very difficult to woo Helen of Troy unless you had clearly shown your wealth prior to the ban. Thus, banning signalling can lead to losses, as the wealthiest suitor may be unable to woo Helen if he came to the game too late.
That’s interesting. Do you have a cite?
I assume the existing cigarette manufacturers demand large profit margins for their products.
Why can’t new cigarette manufacturers enter the market with cheap product and gain some brand loyalty just by being there? (they won’t have to spend on costly advertising for that, since it is prohibited by law) Then they can raise prices or introduce premium versions of their product.
Because they can’t utilize economies of scale or amortize their fixed costs across as large a production run as the large established companies can. Unless the established companies are priced very far above their minimum marginal cost, the small company would be running at a significant loss to undercut them.