A substantial literature in marketing is devoted to measuring the informative content in advertising, and loosely confirms that messages contain limited information. However, the economics literature has not addressed the issue of what information firms wish to convey to potential customers. That is, the literature on informative advertising has not studied the fact that firms choose the content of advertising messages. The goal of this proposal is to develop such a theory and to explore the firms' incentives regarding the amount and the nature of the information they decide to provide in ads. Preliminary results suggest that the firm has a substantial incentive to hold back product information from the ad. When it does want to advertise, it wants to advertise the product characteristics that are most important to consumers. Moreover, it will advertise a greater range of features of the product the more costly it is for consumers to find out this information for themselves (for example, for goods that are infrequently purchased).
The second part of the project will check whether these theoretical predictions are upheld in the data. Magazine and television ads will be analyzed for the amount and the type of information that they contain. It will then be determined whether the information in the ads conforms to the theoretical predictions. The project will further investigate the role of product quality on advertising content and the impact of competition on firms' advertising strategy.