The Economic Theory of Advertising: The Directions of Formation

Abstract

One of the key tools that are traditionally used in solving media strategizing problems is advertising. The impacts of advertising on the processes taking place in the economy are significant and remarkably diverse, thus raising a big question to the media strategists to systematize and classify both the types of such impacts and the economic theories that study it. This work is devoted to the study of this issue: the most significant approaches to a comprehensive study of advertising at various planning periods (from instant to long-term strategic) are presented. We analyze the informative and persuasive functions of advertisement, compare the influence of its visual and textual forms and discuss key points of cognitive and behavior approaches to understand how advertisement affects the consumers’ demand. We describe basic models of economic equilibrium, which take the advertisement influence on different market structures into account, as well as two-sided models of media markets. It is shown that the less developed field of the economics of advertising is behavior and market influence analysis of the firms whose specialization is creating and distributing media content and advertisement. Due to this, we introduce the way to construct a new class of market models involving three types of economic agents — consumers, media firms and economic goods producers.

Keywords

• media strategizing
• economics of advertisement
• consumer behavior
• advertising dynamics
• imperfect competition
• media markets