INFORMATIVE ADVERTISING: A MARKET INFORMATION PROVIDER OR A SEED OF MARKET POWER?

Abstract

This paper investigates the role of informative advertising in creation and augment of market power as well as the ability of an advertiser to maximize the value of its economic rent. Informative advertising is considered to be a merit good unlike a persuasive one that is mostly associated with a bad. But analysis of the advertisement breakdown in Ukraine shows that the share of price advertisements, which are the most beneficial for the public, is negligible today. Further still those advertisements are mostly situated in the sectors, where price competition is the least strong. Another kind of informative advertising – differentiating advertising – turns from an instrument of informing consumers into the vehicle of manipulation of consumer choice. Using the blind tests the author has compared the quality and the prices of the range of advertised goods and has found out a low level of correlation between the variables. That means that informative advertising serves a function of informing consumers inefficiently. At the same time phantom differentiation and misleading advertising proliferation as well as informative advertising concentration on experience and credible goods instead search ones testify to effective serving a function of maximizing advertiser welfare.