What are the motives of advertising?

1. To launch / promote new products (Especially important for new firms as they have no image on the market) 2. In order to give consumers information about price and quality - Important, if the market is characterized by frequent changes in technology - Important if Lemon problem: if on the market both high and low quality products (e.g. used cars) simultaneously sold and consumer do not know a used car's real quality, consumers will not want to pay a high price for quality car (because they don’t know whether it is good quality); but conversely also pay too much for the car of poor quality (lemon). - Informative advertising can alleviate this problem (mentioned in the literature as Akerlofs theory): The markets for lemons (slang for low quality). 3. To increase / maintain its market share - Gain market power 4. To establish / create a brand - Differentiate its product from competitors’ product - Raising barriers to entry for new businesses