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> Not allocating it. I'm not sure what you mean by not allocating it. Even if we restricted all advertising to classifieds, we still need to decide whose ads

> Not allocating it. I'm not sure what you mean by not allocating it. Even if we restricted all advertising to classifieds, we still need to decide whose ads get shown, how many pages they get, etc.. That's what I mean by allocation. And that would still be subject to the problems you identified: the advertiser might be dishonest, they might not have the consumer's best interests at heart, etc. As for how to achieve this objective--have the government rigorously define advertising and ban it in all forms? That just shifts power from advertisers to bureaucrats then, with all the risks of regulatory capture that implies. Let me pose the question in a different way: let's say there are a hundred different kinds of toothpaste. There is a cost to figuring out which kind is the best kind(s), and then letting everyone know the ordering. Who does the work of figuring that out, and then how do they get compensated for that work? Advertising and marketing is one possible answer by creating a signalling equilibrium (https://en.wikipedia.org/wiki/Signalling_(economics)#Introductory_questions https://en.wikipedia.org/wiki/Signalling_(economics)#Introdu...): all else being equal, the better toothpaste should have access to a larger marketing budget. If consumers know this, then seeing someone's ad is actually a (perhaps weak) signal of quality. There are also other models, like Amazon reviews; but there are plenty of ways to game that system, and you're really depending on Amazon to police it effectively. Or you can actually pay someone to review products, like the Consumer Reports model, where you only get access if you pay up. But each of these models has a tradeoff; Consumer Reports works best when everyone subscribes, but then as it becomes more popular, producers will be tempted to buy them off; Amazon reviews are subject to bandwagoning and cheating; classic marketing is expensive (in time and cost) and unreliable.

TeMPOraL 10y ago
Isn't the market itself supposed to sort this problem out? To take your toothpaste example - customers will pick different types, perhaps randomly, and slowly gravitate towards best quality/price option. The word of mouth is pretty effective locally. Now obviously, humans being humans, there's no way to prevent companies from trying to influence that word of mouth mechanism. But there seems to be a benefit from keeping it a shady (or perhaps illegal) practice - the society in general will shun corporate shills and attempts at influencing people's opinions. Which seems to be a better option than what we have now, where marketing is actually a respectable occupation, and people get assaulted with advertisements. > all else being equal, the better toothpaste should have access to a larger marketing budget This doesn't work because the definition of "better" for the market is different than "better" for the consumer. A market!better product is the one that sells more than alternatives, while the consumer!better product is the one of greater quality/usefulness. Market!better gives you profits which increases your marketing budget which increases market!better - you have a positive feedback loop here that bypasses the consumer!better variable entirely - hence the observation that investing in marketing has better ROI today than making something that's actually useful for the consumer.
- smallnamespace 10y ago
  > Isn't the market itself supposed to sort this problem out? To take your toothpaste example - customers will pick different types, perhaps randomly, and slowly gravitate towards best quality/price option. The word of mouth is pretty effective locally. > This doesn't work because the definition of "better" for the market is different than "better" for the consumer. I think these two points of view are incompatible. The first quote implies that consumers can distinguish between two toothpastes, and moreover, they prefer the better one by being willing to pay more for it. If that's the case, then given two initially otherwise identical companies, the one making the better toothpaste will have more sales, and then a larger marketing budget, etc. -- basically, the initial condition of producing a better toothpaste, combined with the positive marketing-sales feedback loop that you identify, leads to the better product winning. Of course, this only works if consumers can tell which product is better, and there might be other factors that prevent product quality from being a strong enough initial condition (e.g. it's really hard to displace incumbents even with a better product). > the society in general will shun corporate shills and attempts at influencing people's opinions. Which seems to be a better option than what we have now, where marketing is actually a respectable occupation, and people get assaulted with advertisements. People who use aggressive tactics like cold-calling usually get paid minimum wage precisely because the signal-to-noise ratio is so low. In a sense, the market already strongly discourages blindly blasting people with noise. Compare to the success of Adwords--advertisers only want to show ads to people who will be interested. The tradeoff here, of course, is reduced privacy for the consumer.

TeMPOraL 10y ago

Isn't the market itself supposed to sort this problem out? To take your toothpaste example - customers will pick different types, perhaps randomly, and slowly gravitate towards best quality/price option. The word of mouth is pretty effective locally. Now obviously, humans being humans, there's no way to prevent companies from trying to influence that word of mouth mechanism. But there seems to be a benefit from keeping it a shady (or perhaps illegal) practice - the society in general will shun corporate shills and attempts at influencing people's opinions. Which seems to be a better option than what we have now, where marketing is actually a respectable occupation, and people get assaulted with advertisements. > all else being equal, the better toothpaste should have access to a larger marketing budget This doesn't work because the definition of "better" for the market is different than "better" for the consumer. A market!better product is the one that sells more than alternatives, while the consumer!better product is the one of greater quality/usefulness. Market!better gives you profits which increases your marketing budget which increases market!better - you have a positive feedback loop here that bypasses the consumer!better variable entirely - hence the observation that investing in marketing has better ROI today than making something that's actually useful for the consumer.

smallnamespace 10y ago
> Isn't the market itself supposed to sort this problem out? To take your toothpaste example - customers will pick different types, perhaps randomly, and slowly gravitate towards best quality/price option. The word of mouth is pretty effective locally. > This doesn't work because the definition of "better" for the market is different than "better" for the consumer. I think these two points of view are incompatible. The first quote implies that consumers can distinguish between two toothpastes, and moreover, they prefer the better one by being willing to pay more for it. If that's the case, then given two initially otherwise identical companies, the one making the better toothpaste will have more sales, and then a larger marketing budget, etc. -- basically, the initial condition of producing a better toothpaste, combined with the positive marketing-sales feedback loop that you identify, leads to the better product winning. Of course, this only works if consumers can tell which product is better, and there might be other factors that prevent product quality from being a strong enough initial condition (e.g. it's really hard to displace incumbents even with a better product). > the society in general will shun corporate shills and attempts at influencing people's opinions. Which seems to be a better option than what we have now, where marketing is actually a respectable occupation, and people get assaulted with advertisements. People who use aggressive tactics like cold-calling usually get paid minimum wage precisely because the signal-to-noise ratio is so low. In a sense, the market already strongly discourages blindly blasting people with noise. Compare to the success of Adwords--advertisers only want to show ads to people who will be interested. The tradeoff here, of course, is reduced privacy for the consumer.