On the Simple Economics of Advertising, Marketing, and Product Design
Johnson, Justin P., and
David P. Myatt. 2006. "On the Simple Economics of Advertising, Marketing, and Product Design."
American Economic Review,
We propose a framework for analyzing transformations of demand. Such transformations
frequently stem from changes in the dispersion of consumers' valuations,
which lead to rotations of the demand curve. In many settings, profits are a
U-shaped function of dispersion. High dispersion is complemented by niche production,
and low dispersion is complemented by mass-market supply. We investigate
numerous applications, including product design; advertising, marketing and sales
advice; and the construction of quality-differentiated product lines. We also suggest
a new taxonomy of advertising, distinguishing between hype, which shifts demand,
and real information, which rotates demand. (JEL D8, L1, M3).
Article Full-Text Access
Johnson, Justin P.
Myatt, David P.