Go here to read a wonderful question from Richard Posner. It’s much too long to post here, but here is his topic:
At the same time that sellers forgo much product disclosure that would seem advantageous both to them and to their customers, they make disclosures that have no information value and should not persuade any rational consumer, such as implausible, self-serving, and empty claims that their product is better, or super; and these claims are often wrapped in clever, funny pictures or anecdotes that are designed to seize the attention of the viewer, but that convey no information.
Posner’s question is a simple one: why? In their typical conversational posting style, Gary Becker posted his opinion. It’s again too long to post in it’s entirety, but two paragraphs of note are:
Economists have generally not been friendly toward persuasive advertising since it is much easier with the usual economic analysis to discuss advertisements that provide information or misinformation. Yet tools are also available for considering the persuasive formation of attitudes and preferences with rational consumer behavior – see my book of essays, Accounting for Tastes, 1996. Although such an analysis of preference formation is dependent on some underlying psychological mechanisms that are not well understood, the process appears to be quite rational.
That said, challenging puzzles remain in using economic analysis to explain the types of information used and not used in advertisements, whether or not there are comparisons to the products of rivals. However, given all the professional time and thought that goes into advertisements, I am reluctant to claim that advertisers are not rational in what they do, for we do not understand all the relevant considerations that enter into the determination of the types of persuasion and information that are highlighted.
I have been fascinated by this for a while. I think a good example lies in product packaging. A year or two ago I was shopping for a new web-camera. At the time, a major producer of webcams offered a “Webcam Live!” and a “Webcam Live! Pro”, with the latter 20% more expensive, in a noticeably larger box (despite housing a product of the same volume) and with insufficient information printed on either box to allow a potential customer to identify the functional difference between the two.
More than simple vertical product differentiation, this seems to me to also be a form of “information discrimination”. By denying the consumer the details of the differences between the two options and offering only general, suggestive signals of their respective quality, the producer seems to ensure that wealthier consumers will purchase the more expensive option and that poorer individuals will choose the cheaper option, irrespective of their functional or qualitative differences. Armed with complete information, the wealthy consumer might recognise that they only require the functionality of the cheaper option, or the poorer consumer – who cannot afford the more expensive option – might consider the cheaper option insufficient for their needs and so not buy either.
Of course, such a tactic on the part of the manufacturer would necessarily rely on two social norms: (a) that people generally accept the information presented to them and make their decision on that basis without seeking more; and (b) that people generally believe that information presented to them, if not entirely accurate, is at least indicative of the truth.
We can expand this by considering the retail outlet that sells the webcams. The retailer would be capable of circumventing the producer’s packaging strategy by, for example, putting information cards beside the two boxes or employing highly knowledgeable retail staff. However, assuming that the retailer shares in the profit from the product sales and not just the revenue, it is in their best interest to collude with the producer and provide no additional information. Without naming names, I can assure readers that this is exactly the scenario that I encountered (the no extra information, that is, not the collusion).
Of course, the two companies would carry a risk of reputation damage as a result of their discrimination. If, as seems intuitively reasonable to me, there is also a third social norm of tending to allot blame to the most visible perpetrator, the retailer carries the bulk of this risk. How can they offset this? By having an advertising campaign emphasise how helpful and informative their staff are …