Advertising as information: further evidence.

• Author: Mixon, Franklin G.

1. Introduction

   In the past 30 years, the economics of information has become an important feature of the revolution in modern microeconomic theory. The seminal literature includes theoretical advances by Stigler [10], Nelson [7; 8], Spence [9], and Darby and Karni [1]. In an original approach, Laband [3] tests the proposition that the supply of product quality signals increases with a rise in the expected marginal return to consumers utilizing Yellow Pages advertisements in various urban settings. In later expositions, Laband [4; 5] provides further evidence of the "durability" of the informational content and the differences in information provision of television and commercial advertisements for different types of goods. The present paper extends and provides alternatives to Laband's tests of the impact of time costs (faced by consumers) on the informational content of advertising. This study employs a supplementary category (to Laband's) of credence goods developed in the literature [2; 6], and analyzes the impact of income as a proxy for time and information costs with a unique, intra-city data set from New York City and Los Angeles.

2. Modeling Intra-City Information Provision

   Demanders of all types of goods will, ceteris paribus, attempt to minimize the full transaction (money plus information plus time) costs of exchange. Consumers will search for goods and services up to the point where their marginal benefits of search equal the marginal costs of search. The opportunity cost of time is a central element in the consumer's marginal search costs, as are the institutions and technology comprising the relevant market area and the supply of information within which the consumer functions [2]. Recent studies have shown that consumer characteristics (i.e., income, mobility) are important determinants of the level of information provision in yellow pages advertisements. Consumer income and mobility (as proxies for the opportunity cost of time) are positive determinants of the number of informational cues within yellow pages ads, because sellers have profit-based incentives to help consumers "economize" on search time, thus minimizing the full trice of goods and services [2; 3; 5]. Goods characteristics have also been shown to play important roles in the number and type of informational cues within advertisements. Following Nelson [7; 8], search goods are those for which judgements regarding product attributes/quality can be made by consumers prior to purchase, and experience goods are those for which such judgements can be made only after purchase. Therefore, the number of informational cues within ads for experience goods will be greater than for search goods, and that the information about experience goods (and their suppliers)...