A problem with “advertising bans”

Over at Offsetting, Eric mentions that there is a view that we need to start banning fast food advertisements.  Personally I think this is a dumb idea, but when it’s people’s job to make up arbitrary interventions to “save the world” they will.

More importantly, it reminds me of one of the first posts I wrote on the blog:

So food with a McDonalds wrapper does taste better. Now I’m sure many people will take this as a sign that advertising is evil, as it can lead to children being overweight, however I think it is an awesome service provided by McDonalds. You see McDonalds advertising makes food taste better, they increase the value of the product to an individual by advertising it, and getting all your senses excited. Although two otherwise identical products might seem homogeneous to you, the fact that the McDonalds wrapper is on one and not the other implies that one has the value associated with advertising while one doesn’t. As all McDonalds is doing is increasing the value of their product, thereby increasing demand I don’t have a problem with it.

Advertising creates value.  Also, I haven’t mentioned here that advertising provides information.  There may be a case to regulate advertising given perceived misinformation, or we could even stretch this to a concern about children (as long as we are honest that this belief is based on targeting “bad parents”).  However, even when we head this far an advertising ban is overkill.

Remember, the goal of policy is to “maximise happiness”, where what gives people subjective happiness may differ from what we believe or assume – not to make people do the things we want, and target things we don’t like.  This involves using mechanisms that allow people to reveal preferences (markets for example), and avoid bans and direct regulation as a last resort.

  • If advertising modifies our preferences then how can we conclude that it is ‘good’? How does welfare analysis work with endogenous preferences? I’m not criticising you, I just haven’t read that literatrue at all.

    • Surely it depends on how the advertising has changed the individuals relative ranking of goods.

      If the adverts do so by increasing the subjective value associated with the product this is a good thing – if the adverts do so by misinforming or reducing the subjective value associated with its competitors then this is a bad thing.

      • More importantly, I think, advertising is likely to change the ranking of bundles and the optimal consumption bundle. Do people rationally account for the change in preferences as a consequence of consuming the advertising and choose advertising accordingly?

        • I certainly hope so – is this a question of how much conscious effort they put on when advertising is near?

          Mmmm, I want food – if only McD’s had real vegetarian options :/

        • I’m pretty sure your model isn’t just going to need “Advertising can change preferences”. It’s going to need “Advertising ESPECIALLY changes our preferences towards things that are bad.” Cause otherwise, wouldn’t we just expect the idiot ad viewer to flip from “Oh, I love McDonalds” to “Oh, I love salad” if the next ad in the queue is for salad?

          If most people (except the noble guys who set policy, presumably: Plato’s Golden Men who are our betters and whose benevolent rule we need) are blithering fools who’ll just do whatever the ads tell them, then we just expect more investment in advertising and we get a signal jamming equilibrium.

          • I don’t think so, although I guess the ads could ‘cancel out’ their respective effects upon preference rankings. Maybe an ad for a Subway sald could move it above a McDonalds salad, though.

            • “Cancelling out” is what I’m suggesting by the signal jamming equilibrium….

              • Ah, sorry, I focussed way too much on the first paragraph of your comment.

  • http://www.stanford.edu/~kbagwell/Bagwell_Web/advertisingintrofv2.pdf

    Useful introduction that outlines three ways advertising could be modelled: preference modification, signal of quality, advertising as a complement to consumption of the advertised good.