Advertising is expensive and thus raises the cost of goods, but it may encourage competition that keeps prices down. This column addresses the old question with data from a natural experiment brought about by tax harmonisation in Austria. It argues that on average advertising decreases consumer prices and estimates that if the 5% tax were abolished, consumer prices would decrease by about 0.25 percentage points.
There is an old debate in economic theory, which goes back at least to Marshall (1919), about whether advertising increases or decreases the prices of consumer goods. Some have argued that advertising provides information to consumers, such as information on prices or the existence of products (for example Butters 1977 or Stahl 1989). This information increases the degree of competition in a market, and thereby lowers consumer prices.
Should governments pay entitlements in cash or in kind to help reduce poverty? The authors of CEPR DP8581 find that cash transfers increase prices, especially in remote areas where the poorest consumers often live. In-kind transfers lower local prices, helping consumers at the expense of producers with a benefit equal to 11% of value of the transfer.
Conventional wisdom says globalisation has increased US income inequality. This column says that is dead wrong, as China and Wal-Mart have increased the purchasing power of the poor more than the rich.
The U.S. presidential campaign has sometimes sounded like a contest to prove who despises trade the most, as Willem Buiter and Anne Sibert point out in their recent Vox column. Media reports of job losses to China and the destructive effect of Wal-Mart on local business are ubiquitous.
The effect of mergers on consumer prices: evidence from five selected case studies
Orley Ashenfelter, Daniel Hosken22 April 2008
US antitrust authorities block very few mergers. This column presents estimates of the consumer price impact of five large mergers that were allowed. Prices increased, providing one piece of evidence to support those who say US antitrust authorities are too acquiescent.
More than a thousand merger requests are filed with U.S. antitrust authorities each year, but only a small number of these transactions are blocked or modified because of concerns that they might result in higher, anticompetitive consumer prices. Recent examples of highly debated proposed mergers include the combination of Delta and Northwest airlines and Microsoft’s bid for Yahoo!.