Advertising and Welfare: Comment

In an earlier article Dixit and Norman studied the welfare effects of advertising. They came to the surprising conclusion that, even accepting postadvertising tastes as the welfare standard, monopoly advertising which raises price is excessive. The point of this comment is to show how and why their analysis fails to apply to the case where there is more than one consumer. Their analysis assumes that preadvertising consumption is distributed efficiently according to postadvertising tastes. Since this is not generally the case, there are gains to advertising ignored by Dixit and Norman.