You keep asserting this. You provide no evidence or argument that it's true.
I am sorry, but what other options are there? The advertising costs are paid out of interest on the firm's bank balances? Out of tax subsidies? Out of charity donations?
The firm's costs are paid out of the firm's revenues. If the firm's revenues come from selling things to consumers, the consumers are paying for the firm's costs -- all of them, including production, distribution, advertising, office space, janitors, and executives' membership in the golf club. The consumers get the product in exchange, of course.
But you're wrong, in the sense that the products are not direct substitutes in terms of consumer experience.
As you mentioned, "You keep asserting this. You provide no evidence or argument that it's true." Let me provide a counterexample.
Many fast-food chains have exclusive contracts with Coke or Pepsi. McDonalds, for example, serves only Coke. Given this, you can directly observe whether Coke is accepted as a substitute for Pepsi: often enough at the counter you can hear the following exchange:
-- What's your drink?
-- Pepsi (automatic answer as that's what the person is used to drinking)
-- Sorry, we have only Coke.
And at this point the customer can either accept the substitution (and say "Coke is fine") or decline it (and say "I'll have X instead"). I don't have actual data, but I've seen this case happen many times and the number of people who will accept Coke is much higher than the number of people who will refuse it.
very different from the market for electronics, where the products are functional substitutes
Coke and Pepsi are functional substitutes. They don't taste exactly the same, but then Samsung's and HTC's phones don't look and behave exactly the same either.
note that we see the most advertising precisely in partially monopolistic markets, and very little in commodity markets, precisely because of the effect on prices.
Citation needed. Advertising is basically buying market share. I would argue that we see most advertising in highly competitive markets where you can buy market share. That means that you can differentiate your product and convince part of the public that the product is better than the other guy's and not just because it's cheaper. And I'm not willing to call all markets with differentiable products "partially monopolistic".
Your ability to persuade an average bloke that petrol of brand X is better than petrol of brand Y is limited. Therefore your ability to buy market share is limited. Therefore you don't spend much money on advertising. But you ability to persuade the same bloke that beer X is better than beer Y is much higher. Thus you can buy market share and advertising beer is worth it (for the firm, of course).
I am sorry, but what other options are there? The advertising costs are paid out of interest on the firm's bank balances? Out of tax subsidies? Out of charity donations?
Out of the firm's profits.
The firm's costs are paid out of the firm's revenues. If the firm's revenues come from selling things to consumers, the consumers are paying for the firm's costs -- all of them
Yes, this is true, in a sense. But it says nothing about what changes when one of these costs change. If the cost of office space increases, does that raise prices for consumers, or do...
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