any new products, the consumer is in a better position to be able to make informed
rational decisions. In addition to this, if advertising is successful in increasing sales, the
firm could experience economies of scale which will lead to lower costs and therefore
lower prices to the consumer. In contrast, many argue that expenditure on advertising is
a waste of resources, as firms tend to exaggerate the differences in their products over
those of other firms. This form of product differentiation creates a barrier to entry
which serves to reduce the level of potential competition in the market. As advertising is
regarded as a selling cost, it is likely to be reflected in higher prices to the consumer. It
seems that the situation is not clear cut and as there are arguments both for and against
advertising, there is little government regulation of the level of advertising. In addition
to this, it is difficult in practice to separate out the persuasive aspects of advertising from
the informative and if all firms in an industry are advertising, the persuasive effects of
advertising tend to cancel out. The exception to this is in the case of harmful goods such
as cigarettes, where there are restrictions on advertising set by the government.