Game Theory and Business Strategy

Burning Money in Advertising

Advertising is generally seen as serving one of two purposes: provide information or signal customers. The informative role is the traditional one associated with advertising: provide customers with information about the product, its uses, price, quality, etc. In contrast, advertising as a signal has no direct informative purpose. Instead, the very fact that the company paid for the ad is the information that the company wants to express. This allows the company to commit to "being in a market for the long term" and to provide high quality products. If the company was out to "make a quick buck," the analysis goes, then they would not be able to recoup the costs of the advertising.

Interestingly, ad executives have long realized the "burning money" aspect of ads. Why, then, they ask, don't we just be direct about it? What better time for a company to "burn money" through advertising then the Super Bowl, during which ads cost up to $100,000 per second.  Here are two ads from Super Bowl 2000.

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