Abstract
Over the years public policy has allegedly, if not in fact, been directed towards promoting competition in industry. When it has ostensibly not done so it has been because the ‘public interest’ has been deemed to be a net loser rather than gainer from inter-firm rivalry. For example, scale economies may diminish consumer choice yet reduce costs and so, possibly, prices. This chapter examines the relationship between advertising and each of scale economies, entry barriers and retailing productivity, with a view to ascertaining how advertising can be fitted into a model of industrial competition.
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References
The following sources have been drawn on in this sub-section:
R. W. Shaw and C. J. Sutton, Industry and Competition (Macmillan, 1976).
C. F. Pratten, Economies of Scale in Manufacturing Industry (Cambridge University Press, 1971).
National Board for Prices and Incomes, The Prices of Hoover Domestic Appliances, Report No. 73, Cmnd 3671 (1968).
The main source for this information was the National Board for Prices and Incomes, Costs and Prices of the Chocolate and Sugar Confectionery Industry Report No. 75, Cmnd 3694 (1968).
John Beasley, ‘…In Mass Consumer Industry’, in Advertising in Perspective (The Advertising Association, 1974) pp. 36–7.
The sources for this section come mainly from Leslie F. Hill, ‘An Insight into the Finances of the Record Industry’ Three Banks Review (1978); BLA Management Services Group Ltd and Brian Bell, Financial Times, 20 November, 1977.
This sub-section draws on the experience of two industries, tea and proprietary medicines. The principal sources are Tea Prices, National Board for Prices and Incomes, Report No. 154, Cmnd 4456 (1970) and Prices, Costs and Margins in the Production and Distribution of Proprietary Nonethical Medicines, The Price Commission, HC 469 (1978).
To cite Joe S. Bain’s Barriers to New Competition (Harvard, 1956).
A. E. Kuehn and R. L. Day ‘The Strategy of Product Quality’, Harvard Business Review (1962).
The Times, 19 May 1978.
Guardian, 19 May 1978.
Television Consumer Audit, published by Audits of Great Britain Ltd.
Target Group Index, published by the British Market Research Bureau.
MEAL Digest of Advertising Statistics.
Advertising Intensity is measured as Advertising Levels divided by (Average Price Paid per unit multiplied by total quantity purchased by housewife).
This sub-section draws on the experience of three industries, proprietary medicines, sanitary products and agrochemicals. The principal sources are HC 469, op. cit., Southalls (Birmingham) Ltd. Sanitary Protection and Other Hygiene Products, The Price Commission, HC 436 (1978), and Fisons Ltd Agrochemical Division—Agrochemical and Horticultural Products, The Price Commission, HC 151 (1978).
P. A. Samuelson, Economics, 10th ed. (McGraw-Hill, 1976) pp. 560–61.
Campaign, 19 May 1978, p. 19.
The Financial Times, 5 Oct. 1978.
E.g. The Monopolies Commission reporting with approval in 1977 (HC 412, para. 301) that the leading bread firm regarded statutory price control as desirable. This control was accompanied by a ‘discount freeze’ which benefited no one but the existing large bakers and the government. The small independent plant bakers, however, were very unhappy about the discount freeze. The Monopolies Commission reported that some independents: Sought permission to grant discounts in excess of those statutorily prescribed on the ground that they needed to do so in order to counterbalance the greater advertising power of the Big Three Groups. At the suggestion of Government, this led to a voluntary agreement whereby the Big Three undertook to refrain from national advertising of their major brands of 28 oz. standard bread for a period. (HC 412, para. 300) The agreement lasted for nearly 18 months from January 1975. The ’ public relations’ conduct of the episode by Mrs Williams and her civil servants was politically astute. Government subsidies, they said, were not being used on ’ wasteful’ advertising. The frozen discount was not simply being transferred to other forms of promotion. The large bakers were holding down costs, and subsidies would not require to be as high as they might otherwise have had to be.
This gracious withdrawal from the competitive fray by the large bakers was, however, not so simple. Total bread advertising did indeed fall, but not dramatically. In 1973, £2.4 million was spent on press and television advertising in 1974, £1.9 million, and in 1975 £2.0 million. The advertising budget had merely been re-directed to other products such as ‘slimming’ loaves, proprietary breads, non-standard breads, bakery ranges, with the same brand names as the relevant standard loaves, and to the regional standard loaves manufactured by the Big Three. Thus in 1974 ‘Mother’s Pride Baker’s Basket’ had £200,000 worth of advertising support and ’ Big T’ (not a nationally distributed loaf) £240,000. Similarly, when ABF opened its new regional bakery in the Balmore district of Glasgow, its loaf was promoted as Balmore’ bread, not as Sunblest’. In this way, the competitive position of the independents was further weakened. Firms were merely following their competitive judgement, but doing so in a framework of rules laid down by government which ensured that the outcome would be one reduced, not increased, competition, and higher not lower, consumer prices. The independent plants were stopped from increasing their discounts to compete with the advertising expertise of the Big Three. (Source: W. Duncan Reekie, Give Us This Day ... Institute of Economic Affairs, 1978.)
Israel Kirzner, ‘Advertising’, The Freeman (1972).
Distributors’ Margins on Paint, Children’s Clothing, Household Textiles and Proprietary Medicines, National Board for Prices and Incomes, Cmnd 3737 (1968).
Robert L. Steiner, op. cit.
Price Commission, Paint Report, Report No. 32 (1978).
NBPI, Distributors’ Costs and Margins on Furniture, Domestic Electrical Appliances and Footwear, Cmnd 3858 (1967).
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© 1981 W. Duncan Reekie
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Reekie, W.D. (1981). Advertising and Public Policy. In: The Economics of Advertising. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-04877-9_7
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DOI: https://doi.org/10.1007/978-1-349-04877-9_7
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