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April 20, 2015
Advertising: An Economic Equalizer
 
According to studies done on the advertising landscape, few of the advertising professionals we rub shoulders with actually went to school for advertising. Yes, the marketing and advertising professionals whom we call colleagues have either learned the trade by trial and error or had a career that had an easy transition into advertising.

It is a gift and a curse for the profession we love, hate, hate to love, and even love to hate. The low barriers of entry allow for a diversity of minds, yet a lack of foundation with history and a trained process of thinking can have us in a circle of frustration and lack of progression.

AdLand is experiencing a delightful Catch-22. That's okay, because professionals and professional educators like us can help seal the gap.

We want to talk about advertising as an economic function. 

True, many people see advertising as an art; as a way businesses tell consumers, "Look! Here we are!" and consumers notice. Hopefully. Others see advertising as a means to an end; they use advertising as a way to make and stay in a business. We think that both views are correct, but there are more than two views in advertising.

We like to look at business as a giant game of strategy. There are several players in this game, and each player can use different means in order to win, with "win" meaning getting the most consumers while earning a profit.

Economics suggests that within each business environment — or in this case, within each game — there are limited (or scarce) resources. Therefore, the winner of the game must be able to use or sell whatever scarce resources they have in order to win.

Makes sense, right?

It should. If we accept the above game premise as true, then we can adopt a number of assumptions. First, we can assume that perfect competition doesn't exist; if consumers knew exactly the quantity of resources available, the consumers (or buyers) could calculate the value and the winning company could just sell the resource at the cheapest price as quickly as possible. Second, we can assume a monopoly cannot exist, because the premise assumes that there are indeed multiple players, a fact that cannot stand against a monopoly.

Therefore, on a micro-economic  scale, we must look at it with an oligopolistic view — an industry that is controlled by a few players, but has many buyers.

You're asking: Where in the world does advertising come into play?

It's the equalizing factor between sellers. If one advertises more than the other, the firm isn't creating brand new sales, but it is increasing its own profit at the expense of another firm within the industry. Yes, advertising doesn't mean that a business gets "new" customers, but in most cases, advertising causes consumers to switch from one brand (or player) to another. 

In an academic and theoretical sense, advertising can shift and level the playing field. If Firm A wins consumers because it released a new product, Firm B can outspend Firm A and pick up some of Firm A's consumers. Though product development is important, there are several studies that would dictate that just having a big ad presence can be almost as effective.

The takeaway? In order to be successful in advertising, one must know more about how a pretty graphic can catch consumers' attention, or how a survey's cross-tabulation highlights a consumer insight. It is critical to know how advertising fits into our economic environment.

*advertising in oligopoly environment from Baye 2006, Managerial Economics and Business Strategy

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Dwayne W. Waite Jr. is partner and principal at JDW: The Charlotte Agency, a marketing and advertising shop in Charlotte, NC. He enjoys consumer behavior, economics, and football.
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