How useful is advertising?

The economic foundations of advertising

Advertising is the medium for economic information

The fundamental problem addressed by advertising in its broadest sense (communication, marketing, etc.) is the asymmetry of information between supply and demand. Consumers are not magically aware of the diversity of offers available to them. And yet, they will have to make a consumer choice. The company therefore needs a way of communicating what it sells, and explaining what differentiates it from the competition.

One way of doing this is to allow companies to communicate information about their products in the public domain. In a directive issued in September 1984 ² the European Union defines advertising as “any form of communication made in the course of a commercial, industrial, craft or liberal activity with the aim of promoting the supply of goods and services”. Advertising” is more commonly understood as any form of space purchase dedicated to a company’s communication (physical, visual or sound space).

Today, public authorities decide on the channels through which advertising is authorized (public billboards are restricted to certain locations, television advertising slots are limited, etc.), but there are still many of them, and digital gives them a prominent place. Rules also govern advertising content itself. Claims that are false or likely to mislead consumers are prohibited in France. ³ and the promotion of tobacco and alcohol is strictly controlled, if not prohibited. Beyond a few strict prohibitions, the French system relies in part on the autonomous accountability of players via the ARPP (Autorité de Régulation Professionnelle de la Publicité), which has provided recommendations and a code of ethics.

Most sectors of the economy use advertising to sell their products, with consumer goods, the automotive industry and large-scale distribution leading the way. In France, advertising is prohibited for certain professions, in particular regulated liberal professions such as doctors, lawyers, notaries and architects. ⁴ . That said, legislation is becoming increasingly open under Anglo-Saxon influence. Regulation is much more permissive in the USA, where advertising for doctors and law firms is commonplace.

Advertising reveals and creates demand

A key question is whether advertising reveals or creates demand. In other words, do we need everything advertising offers, or does it create new needs?

It may be that advertising does both, or at least that it depends on how the advertising content has been designed. In fact, advertising generally relies on two levers.

• Informative leverage: provide information on the value of a product that we already need to use, by highlighting its characteristics in relation to other similar products. For example, try to show that detergent X washes better than detergent Y, while assuming that the consumer needs detergent.
• A persuasive lever: convince us of the need for new uses and therefore new products. For example, they try to convince us that an SUV is a normal means of travel in urban areas, or that you can’t go jogging without a connected watch. Advertising sometimes goes so far as to sell a model of life and a definition of happiness. This can be seen in perfume commercials that promote money, fame, cars, muscles and women.

Depending on the product, brand strategy and communication channel, one or other of the two levers is more strongly activated, tilting the “ad” either on the strictly informative side, or on the persuasive, demand-generating side.

A zero-sum game

To a certain extent, advertising using the information lever is a zero-sum game, in that different companies try to capture a given number of consumers with a given overall budget. If two companies sell a very similar product, they enter into an advertising war to attract as many customers as possible. This battle creates nothing (except work for the advertising agencies), and it’s the consumer who pays for the advertising investment in the cost of the product. ⁵ .

From this point of view, advertising would be wasted labor, since it doesn’t produce useful consumer goods, but merely serves to split market shares. Nonetheless, this labor can eventually be a beneficial investment, since it provides information to the consumer, who can then make a better choice.

Advertising is at the heart of many companies’ business models

In 2024, net advertising revenues in France amounted to 18.9 billion euros. ⁶ Advertising is therefore also a source of revenue for certain economic players. For example, a media company that publishes a newspaper captures the attention of its readers for a few minutes every day. A first model is to charge for access to the newspaper, since the reader makes a profit from it. A second model is to make a deal with a third party: a company that wants to talk about itself. The media agrees to give access to part of the attention it captures in return for payment, and the reader agrees to pay less (or nothing at all) for access to the media in return for exposure to advertising content while reading. ⁷ .

Many businesses are founded on an advertising revenue model: TV channels, radio stations, newspapers, websites, mobile applications and so on. Advertising supports an attention economy in which the aim is to capture the public’s attention for as long as possible. In 2004, Patrick Le Lay, then CEO of TF1, declared in an interview: “What we sell to Coca-Cola is available human brain time”. ⁸ That said, we probably wouldn’t have access to the same amount of content to entertain and educate ourselves if advertising didn’t exist.

Any public policy aimed at reducing the amount of advertising must therefore also accompany the economic shock it generates for those economic players whose model is based on advertising revenues. For example, we need to subsidize public television more and rethink the financing of private channels.

Advertising excesses

In the end, advertising provides little information

In theory, the economic role of advertising is to provide consumers with the information they need to make the right choice. However, advertising plays more on emotions (the feeling of belonging to a class, of being like others, the need to correspond to a value judgment) than on product characteristics.

Moreover, there are very few advertisements for truly innovative products that we wouldn’t know about: TV commercials are mostly taken up by consumer goods or cars. Advertising relies heavily on repetition to ensure that consumers retain the image and name of a brand. The act of buying in a store is generally a very quick one, so advertising aims to encourage almost reflex decisions (hence the idea of “advertising hype”). What’s more, the same brands are regularly used, which distorts competition. The reason for this is that degressive advertising prices give power to the big players who can afford to buy advertising space in bulk. ⁹ .

Advertising is sometimes misleading. In practice, there is little to stop a company from communicating an exaggeration of the truth, or outright false information. The ARPP (Autorité de régulation professionnelle de la publicité) regularly receives complaints from consumers who feel that an advertisement was misleading or deceptive. Without being false, an advertisement may convey only part of the truth about its characteristics. The regulator is therefore reduced to requiring advertisers to add statements such as “For your health, avoid eating too much fat, too much sugar or too much salt”. ¹⁰ or “Alcohol abuse is dangerous for your health”. ¹¹ to restore a little truth to advertising communications.

Advertising is dangerous when it affects health

Buying a washing machine that isn’t your “optimal” washing machine because you’ve been influenced by misleading advertising information isn’t such a big deal. On the other hand, in certain sectors such as pharmaceuticals, advertising can be particularly dangerous.

In 1996, Purdue Pharma launched an aggressive marketing campaign for its prescription opioid painkiller OxyContin. The information provided during this campaign is now considered misleading. ¹² and is considered to have contributed significantly to the worsening of the opioid epidemic in the United States.

A study published in 2022 ¹³ used OxyContin’s introduction strategy to quantify the impact of marketing on consumption. Indeed, some states had stricter regulation of prescription drugs. Purdue Pharma therefore focused its marketing efforts on those states with the least stringent legislation. As it turned out, distribution of OxyContin was more than twice as high in the least restrictive states, demonstrating the impact of advertising.

In France, current regulations prohibit direct-to-consumer advertising. According to article L5122-6 of the French Public Health Code, “a medicine may only be advertised to the public if it is not subject to medical prescription” and “none of its various presentations may be reimbursed by compulsory health insurance schemes”. Only non-reimbursable non-prescription drugs may be advertised.

And yet, pharmaceutical companies are allowed to promote their products directly to doctors through donations, gifts or grants to finance their attendance at conferences. Moreover, doctors have almost no incentive to prescribe the cheapest and most effective drugs. In his thesis, published in 2023, economist Hancito Garçon showed that 1 euro invested in sales promotion among all self-employed doctors can generate just over 5.15 euros in additional sales. The pharmaceutical industry’s influence on healthcare professionals is therefore a major issue in the regulation of advertising.

Advertising is invasive in many ways

The form that advertising takes invades both public and private space, and is the main reason why advertising is now perceived as undesirable by most consumers. On average, we see over 1,000 ads a day. ¹⁵ This contributes significantly to light pollution in cities. As part of the “sobriety plan” linked to the energy crisis, a decree was issued in October 2022 to ban illuminated advertising from 1am to 6am. Advertising also has a major impact on the landscape, as it occupies a large proportion of urban visual space: billboards on sidewalks, bus shelters, roadsides, in the metro and on the facades of commercial signs, for example. For several years now, it has been contributing to a visual downgrading of urban landscapes, regularly denounced in several articles describing an “ugly France”. ¹⁶ or even an “ugly France”. ¹⁷ . Finally, telephone canvassing by telephone operators or energy suppliers is at best undesirable, at worst a form of harassment.

On the other hand, advertising generates all the more revenue for TV channels, websites and social networks that succeed in capturing our attention. On the one hand, this exacerbates the crisis of attention ¹⁸ we’re experiencing. On the other hand, it’s an incentive for all these media to capture our gaze and take up our time by any means necessary (including “fake news”, polemical comments, shocking or violent images).

We’re also exposed to advertising without realizing it. The term “native advertising” refers to the fact of promoting a product by inserting it into the editorial content of a medium (website, newspaper, video). Many sites make a living from it (Topito, BuzzFeed or Konbini, for example). ¹⁹ ), and this clearly poses an ethical problem of transparency.

If economic theory is to be believed, consumers should demand advertising, as it helps them make better choices. In practice, however, they are saturated with information, unable to sort it out, and do everything they can to avoid advertising content (web surfers use ad blockers, and TV viewers zap during ad pages).

Advertising content is sometimes political

To reach its audience, advertising regularly uses social representations, thus entering the political arena. This raises the question of what is acceptable and what is not. In a caricatured way, can advertising address “macho” men, for example, by adopting their codes? The image of women in advertising ²⁰ until very recently was sexist.

Moreover, unlike in the United States, advertising for political parties is prohibited. ²¹ on television in France since 1990 to limit the power of money in politics, and campaign spending is regulated. ²² Julia Cagé shows, in The Price of Democracy (Gallimard, 2020), why and how the democratic game is captured by private interests in many developed countries. Political parties need money to organize meetings, print leaflets, communicate on social networks – in short, to advertise. But political parties don’t generate income: they rely on donations and private subsidies (if public subsidies are insufficient, which is usually the case). There is therefore a clear risk of collusion between the interests of the funders and those supposedly represented by the political party. In the USA, for example, the NRA (the powerful firearms lobby) ²³ finances the communication campaigns of candidates of interest to them. In return, the association enjoys virtual political immunity and ensures that gun regulation moves forward as slowly as possible.

The advertising lobby opposes all regulation

The Nutri-Score is a nutritional labeling system with 5 levels, from A (best score) to E (worst score). This score evaluates the nutritional value of a product according to various parameters such as sugar, salt, fiber, protein content, etc. Its aim is to steer consumption towards the best products, and thus combat cardiovascular disease, obesity and diabetes. In France, the agri-food industry is fiercely opposed to the scheme and has tried to block or, failing that, delay its adoption. The cheese and charcuterie industries have said that they are penalized by this score, and point to the need to defend traditional French gastronomy. This is another case where public health issues come up against industrial economic interests represented by their lobbies. Many brands have now adopted the Nutri-Score, but European regulations do not officially impose it, and some multinationals are still opposed to it (Ferrero, Mondelez, Coca-Cola, Unilever etc.).

A study by Santé Publique France ²⁴ also recommends banning advertising aimed at young children for products with a low Nutri-Score. The Gattolin law of 2016 had already banned such advertising during youth programs on public television, but the time spent by young people in front of these programs is only 1% ²⁵ compared to other youth channels. In 2019, a bill was debated to extend this ban to all channels. However, the government had the article deleted ²⁶ of the proposed law. To date, there are no other regulations governing children’s exposure to unhealthy products. This case shows that advertising regulation is up against powerful lobbies.

Yuka is a mobile application that lets you scan food products to obtain detailed information on a product’s impact on health. The aim is to provide more comprehensive recommendations than the Nutri-Score, for example by recommending similar products that are less harmful. In 2020, Yuka, the Ligue contre le cancer and Foodwatch denounced attempts at intimidation by the charcuterie industry. ²⁷ Yuka informed its users that the nitrites and nitrates found in charcuterie were carcinogenic. The Paris Commercial Court ruled in favor of the Fédération française des industriels charcutiers traiteurs (FICT), condemning Yuka in the first instance for “unfair and misleading commercial practices”. The app has appealed, and its managers have denounced “gagging procedures aimed at silencing them”. ²⁸ And yet, the Anses (Agence nationale de sécurité sanitaire de l’alimentation, de l’environnement et du travail) recommends reducing exposure to nitrates. ²⁹ and has analyzed the scientific literature, which “confirms the existence of an association between the risk of colorectal cancer and exposure to nitrites and/or nitrates”. In 2023, the Court of Appeal overturned the lower court’s conviction ³⁰ although two other disputes remain between Yuka and a manufacturer and the Fédération des industriels charcutiers-traiteurs (FICT).

Advertisers can also blackmail the press, when the latter reveals information that puts them in difficulty. In France, LVHM withdrew 600,000 euros worth of advertising ³¹ from the newspaper Le Monde following publication of the “paradise papers”. A little later, Elise Lucet denounced the blackmail of France Télévisions management by advertisers. In 2015, the Volkswagen group asked the regional press to withhold information on Dieselgate, or it would stop advertising in these newspapers.

The inconsistency of the advertising lobby’s arguments

To sidestep any attempt at regulation, the advertising lobby generally oscillates between two arguments, both of which are false and, what’s more, contradictory.

The first argument is that advertising is a zero-sum game. Advertising is irrelevant, since it only serves to decide between companies willing to enter the marketing war. On the one hand, as we’ll see, this argument is false: advertising generates consumption and doesn’t just divide up the cake. On the other hand, even if the argument were true, the game is a zero-sum game for companies, but a negative-sum game for consumers. They are the ones who pay the marketing costs and bear the financial cost of the communication war. From this point of view, advertising should be banned: companies wouldn’t waste time fighting each other, and consumers would save money.

The second key argument is that advertising is good for GDP. In 2017, Deloitte conducted an econometric study ³³ to study this impact. Let’s note right away that this study was commissioned by the World Federation of Advertisers, and that Deloitte is a consulting firm, not a research laboratory. To do this, the firm gathered historical GDP data from several countries, looking for the effects of different variables such as advertising investment (and other parameters that are likely to influence GDP). Without going into the details of the methodology, the study concludes that €1 invested in advertising corresponds to more than €7 of GDP. Remember that an econometric study does not demonstrate the direction of any causality, or even whether it is causal or correlational. We’ll see later that advertising does have an impact on GDP, but mainly through the additional consumption it encourages, which is much lower than advertisers claim. In any case, GDP is by no means an indicator of well-being(see our module on GDP), so whether or not advertising has an impact on GDP is, in the final analysis, of little importance.

Finally, these two arguments contradict each other: advertising can’t be both a zero-sum game and a GDP generator. Either advertising generates consumption (and therefore affects GDP), or it merely distributes shares (and therefore does not affect GDP), but not both.

Advertising and overconsumption

Advertising generates consumption

In 2014, a UN report ³⁴ lamented that advertising now focuses on “the link between affective reaction and decision-making” and short-circuits individuals’ rational decision-making processes. Advertising deregulates our reward system, attacking values whose fulfillment depends on others, such as social status and wealth.

An economic study conducted jointly by the Communication & Démocratie think tank and the Veblen Institute ³⁵ has shown that the level of advertising expenditure in France over 30 years has led to a 5.3% increase in household consumption and a 5.0% rise in GDP. At the same time, this spending increased the number of hours worked by 6.6%, and wages fell by -1.14% (this fall is an indirect consequence of advertising investment). This is understandable: advertising only makes us want to consume more, without making companies more efficient. The only way to satisfy our desire for additional consumption is to work more.

The study also shows that an 8% tax on all commercial communications would reduce consumption by 0.69% and GDP by 0.67%. At the same time, the number of hours worked would fall by 0.92% and wages would rise by 0.16%. In addition, this tax would represent 1.66 billion in additional public revenue on average over 3 years.

All in all, these figures show that advertising has a “positive” impact on GDP. But this impact is not free. By making us dissatisfied with what we already have, advertising encourages us to consume more, forcing us to work harder, for the same level of well-being. There’s no evidence to suggest that advertising doesn’t stimulate creativity, productivity or efficiency, but there is strong evidence that it does stimulate the greedy desire to consume.

Advertising itself consumes resources

Moreover, advertising media themselves consume resources. The FNH points out in a report ³⁶ an ADEME estimate: one illuminated billboard consumes 2 MWh per year, equivalent to the total electricity consumption of a French person over the same period. In addition, the manufacture of a 200 kg panel would require 8 tonnes of materials. According to the Stop Pub initiative ³⁷ initiative, unwanted paper advertising delivered to letterboxes represents 40kg of waste per year per French person. On online video sites (YouTube, etc.), it accounts for a significant proportion of streaming, since each video starts with around ten seconds of advertising, adding to the carbon footprint of digital content. Advertising also accounts for the bulk of e-mails sent, which are often heavy because they contain images.

Fashion is increasingly ephemeral

Fashionable dress, which designates the way of dressing according to a given social group and region, is a collective movement, which presupposes that everyone agrees on what is fashionable and what is not. Without a central figure, fashion takes time to evolve, as each member of the group must have received the information, be sure that the other members have received the same information, be sure that the others are also sure that he or she has received the information, and so on. Advertising acts as a central actor, getting everyone to agree on what’s fashionable, thus enabling more rapid dissemination, and therefore more frequent fashion changes and wasted resources. Advertising has led to the emergence of “fast fashion”, where one collection follows another, boosted by unbridled marketing. According to fashion historian Audrey Millet, the production of a garment now represents just 6% of its price, while advertising accounts for 12%. ³⁸ .

The same phenomenon occurs with technological products. Every year, advertising for new iPhone models reinforces the idea that the previous model isn’t good enough, and that it’s better to get the new one. What’s more, Apple’s marketing plays on the idea that the iPhone has become a social marker and an outward sign of wealth, which vanishes as soon as the iPhone in question is too old a model (a sign of “old-fashionedness”).

Influencers sell a deadly lifestyle

An influencer is a person who, through their digital exposure via social networks (Instagram, Tiktok etc.) and sharing platforms (Youtube, Twitch etc.), is able to influence the lifestyle and consumption habits of the audience that follows them. Most influencers do so for marketing purposes, and therefore financially, as brands use them as communication relays. The sectors most represented in product placements are beauty, fashion, gastronomy, surgery and travel. Influencers can earn several thousand euros per post ³⁹ (up to 1 million for the best-known), so it’s an attractive profession. Influencers are all the more famous for promoting a dream, resource-hungry lifestyle of travel, big cars and shopping sprees. The brands that associate themselves with them convey the same image.

Furthermore, advertising and partnerships are often disguised and not clearly advertised; the public is unsuspecting and rarely critical, fooled by the trust it has in its influencer. The consumer code ⁴⁰ clearly states that the promotion of a product financed by a professional must be advertised as such. However, influencers do not always specify that they are in fact promoting a product. In view of the abuses observed, the “Influencers Law ⁴¹ passed in 2023, clarifies who is considered an influencer, provides a framework for practices (obligation to clearly indicate advertising content) and prohibits the promotion of certain products and services (surgery, finance, sports betting, etc.).

Transforming the purpose of advertising

Advertising helps guide consumption

Advertising is a tool to guide consumption, neither good nor bad by nature. Today, however, this tool is largely in the hands of companies and insufficiently regulated. Consumption is then directed towards the product that has benefited from the biggest marketing investment and the best advertising ideas.

Public authorities would do well to use advertising to steer consumer decisions in the right direction (and limit those that go in the wrong direction). It’s free for the state, painless for the consumer, and an incentive for companies to favor “good” products. This is already the case to a certain extent. For example, tobacco manufacturers are not allowed to advertise their products. ⁴² The aim is to limit consumption, thereby improving individual health and reducing social security expenditure.

It is also possible to simply ban advertising, in the name of respect for the environment and the well-being of city dwellers. In June 2022, Lyon’s metropolitan council introduced a new Local Advertising Regulation (RLP) that simply bans digital billboards and giant advertising tarpaulins on buildings under construction. ⁴³ . It also imposes a maximum size for advertising panels (4m²) and the extinction of illuminated signs at night. The city of Rennes has also taken a similar decision. ⁴⁴

Greenwashing is bad for the environment

Greenwashing is a marketing technique that consists of communicating about a good or service using a misleading ecological argument, or omitting a significant part of the ecological impact of the good or service in question. It can be likened to misleading advertising.

Greenwashing also creates the illusion that the fight against climate change is “easy”, and that it’s enough to choose consumer products carefully. It confuses consumers who are sensitive to environmental issues, and can lead them down the wrong path in their consumption decisions.

It is also detrimental to sincerely committed and virtuous companies, who find themselves competing with far-fetched environmental claims that confuse consumers.

Advertising for the climate

Advertising guides consumers without forcing them, and can therefore be a painless lever for decarbonizing consumption. If marketing can unconsciously influence consumer choices, it might as well do so in a socially and environmentally beneficial way. According to the FNH ⁴⁵ 50% of the automotive advertising budget was earmarked for hybrid and electric vehicles in 2021, even though they account for only 20% of sales. This trend is likely to be reinforced by the new legal obligations to communicate environmental performance.

Among the 150 proposals of the Citizens’ Climate Convention published in the summer of 2020, those dedicated to advertising were radical. The citizens considered that advertising “more or less directly incites over-consumption by creating new needs or by inviting people to renew products that are still functional” and that“a product that is particularly harmful to the climate – without being banned to respect freedom of trade and consumption – should not be promoted to the general public”. ⁴⁶ Three proposals emerged: ban advertising for products that emit the most greenhouse gases, regulate advertising to limit incentives to consume, and introduce labels to encourage people to consume less.

It is possible to go further than these recommendations, for example:

– By rebalancing the advertising model in favor of smaller players.

– Strengthening sanctions against misleading environmental claims.

– By banning advertising for goods and services whose GHG emissions are not currently compatible with the Paris agreements.

– By further restricting advertising space on TV and in cities.

Finally, at European level, a directive adopted in 2024 aims to “empower consumers to act in favor of the green transition through better protection against unfair practices and better information”. ⁴⁷ For example, it prohibits certain misleading claims, such as that a product has “a neutral, reduced or positive impact on the environment in terms of greenhouse gas emissions”, based on carbon offsetting.