The economic case begins with a problem the persuasion story ignores — buyers do not automatically know what exists. As economist George Bittlingmayer explains, a large share of advertising is informative: it tells consumers that a product exists, what it does, what it costs, and where to buy it (Advertising — Library of Economics and Liberty). That information is not a frill. Without it, a buyer has to expend real time and effort discovering options, and a new or better product has no way to reach the customers who would prefer it.
This is why the informational view turns the "advertising raises prices" claim partly on its head. By lowering buyers' search costs and making it easy to compare offers, advertising can intensify price competition and push prices down. The classic evidence comes from cases where advertising was banned and then allowed: in markets for eyeglasses and other goods, prices were measurably higher where advertising was prohibited, because the ban shielded sellers from comparison (Advertising — Library of Economics and Liberty). Information is the enemy of a comfortable, uncompetitive seller — which is precisely why some sellers historically lobbied to ban it.
There is a deeper layer. Even advertising that carries almost no hard facts can convey real information through signaling. A firm that spends lavishly to launch a product is, in effect, posting a bond. Heavy advertising only pays off if customers come back and buy again, and they will only come back if the product is actually good. So the very act of spending big signals that the firm itself expects the product to satisfy — a confidence that would be irrational to broadcast for a product destined to disappoint (Advertising — Library of Economics and Liberty). This dovetails with the economics of brand names, where a recognized brand serves as a standing promise of consistent quality that lets buyers trust what they cannot verify in advance (Brand Names — Library of Economics and Liberty). The content-free perfume ad still carries a message: we are betting a fortune that you will love this enough to buy it again.
The proof: why the signal is credible
A signal only works if it cannot be cheaply faked, and this is where a piece most people overlook does heavy lifting — advertising is legally constrained to be truthful. In the United States, the Federal Trade Commission requires that advertising be truthful, non-deceptive, and that objective claims be substantiated by evidence before they are made (Truth in Advertising — Federal Trade Commission). A company cannot lawfully claim its product lasts twice as long or cures a condition without backing it up; deceptive claims draw enforcement action.
That regulatory floor is what makes the informational and signaling roles credible rather than empty. The same logic now extends to modern formats: the FTC requires that paid endorsements and influencer posts be clearly disclosed, precisely so that a recommendation carries real information about whether it is independent or bought (Disclosures 101 for Social Media Influencers — Federal Trade Commission). Strip away the assumption that claims must be true and the persuasion story would be right — advertising would be cheap talk. Hold firms to truthful, substantiated claims, and a large share of advertising becomes a mechanism for moving genuine information from sellers who have it to buyers who need it.
What to do instead of dismissing it
The better mental model is not "advertising is manipulation" or "advertising is information" but advertising is a mix, and you can tell which is which. When you see an ad, ask what it is actually doing. Is it telling you something checkable — a price, a feature, an availability, a comparison? That is the informative kind, and it is doing you a service by lowering what it would cost you to find that out yourself. Is it pure mood and image with nothing to verify? Then read it as a signal — the firm is spending to tell you it stands behind the product — but supply the missing facts yourself before buying. And when two rivals are simply shouting over each other, recognize the combative case for what it is and discount it.
The honest verdict is the one the evidence supports: advertising is neither the villain of the popular story nor a harmless public service. It does real informational work — reducing search costs, signaling quality, sharpening competition — alongside its persuasive and occasionally wasteful uses. The economy spends enormous sums on it not because buyers are dupes but because, in a world of differentiated products and imperfect information, telling people what exists and standing behind it is genuinely valuable. The next time you are tempted to wave an ad away as mere persuasion, ask what information it is carrying. Often there is more there than the cynical story admits.
