Advertising as a Determinant of Health

Summary

This article has provided a conceptual and empirical framework through which to study the economics of advertising in the context of markets for health inputs. The Dorfman–Steiner model positively relates advertising intensity to the advertising-sales elasticity and negatively relates it to the price elasticity of demand. The competing informative and persuasive views of advertising are explored, in addition to the view of advertising simply as a complement to the advertised good. Search and experience goods are distinguished and briefly discussed. These attributes, combined with the product’s price and advertising elasticities, generally determine the advertising intensity of the product.

An analysis of advertising in select health markets is covered, with a focus on selective versus primary demand effects and relevance for public health. Econometric studies typically find effects on consumption for tobacco, soft drinks, fast-food restaurants, and prescription drugs, which reflect an advertising induced industry expansion effect. For the alcohol industry, there is some evidence of small positive overall demand effects for certain segments of the population such as problem drinkers and youth. More empirical research, however, needs to be conducted, particularly addressing the potential endogeneity of advertising. A key obstacle for researchers is the high price of acquiring detailed advertising data. Currently, advertising data are only provided by a few companies, including Nielsen and TNS (now part of Kantar Media).

Future research in this area will increasingly stress the roles of online advertising, which allows greater targeting of the product to the potential user, and neuroeconomics, which may yield insights on the pathways underlying the consumer response. The emerging research combining behavioral economics and neuroscience is timely, for instance, as online purchases made after exposure to advertising may have higher probabilities of being ‘hot state,’ impulsive purchases. Some thoughts are provided on new directions for research in these increasingly important topic areas.

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Addiction and Health
Health at Advanced Ages