THE PRICE REDUCING POTENTIAL OF ADVERTISING.

In a recent article Peter Doyle's [8] survey of the literature concerning the economic effects of advertising suggests that the failure of standard economic logic in this controversial area is due partly to the lack of a time dimension in the analysis and partly to the treatment of price and advertising solely as substitute methods of expanding sales. As a consequence, and central to the advertising controversy, considerable disagreement exists concerning the effect of advertising on the prices of monopolistic firms. This paper proposes an alternative approach to the analysis of advertising which demonstrates that, when time lags are explicitly introduced into demand functions, advertising can be an effective complement to a price decrease, thereby producing a lower optimum price. [ABSTRACT FROM AUTHOR]