Clear Signal

Campaign Middle East|March 11, 2018

Clear Signal

Advertising and brand-building can save us from economic collapse, writes Leo Burnett’s Ahmad Abu Zannad

Leo Burnett's Ahmad Abu Zannad

Advertising and brand-building can play an essential role in salvaging economies and protecting entire markets from collapsing. I will demonstrate this by showcasing how creative advertising and brand-building are also part of evolutions in economics.

Our economic systems and free markets are all based in part on Adam Smith’s ‘invisible hand’ theory. The theory states that if governments leave buyers and sellers to freely make their own decisions, buyers will only pay the price they see fit for products or services, while, in turn, sellers will only sell for the prices they see fit. With free trade and open competition, and the push and pull of the invisible hand, the market will, theoretically, reach its optimal price.

However, there are abnormalities and exceptions that, in practice, have proven the theory to be less than 100 percent accurate. In some circumstances, this could be addressed by falling back on government interventions, such as in the case of a specific seller having a monopoly over a market, or when a third party is being affected. For instance, the government may need to intervene if a transaction has a negative environmental consequence, or, in simpler terms, if a neighbour is unable to sleep as the result of a transaction between a loud DJ and a late-night partier next door.

Another exception to the invisible hand theory is what economists refer to as asymmetry of information. This is when either the seller or the buyer possesses information about the product or service being sold that the other party does not. Such an exception has the potential to push markets to fail.

Nobel Memorial Prize in Economic Sciences recipient George Akerlof was the first to discuss the negative consequences of information asymmetry in his 1970 paper, “The Market for Lemons: Quality Uncertainty and the Market Mechanism”. Using the example of the used car market, the premise of Akerlof’s paper was based on a situation where only the seller has the information necessary to tell the difference between a lemon (slang for a defective used car) and a peach (a good quality car). The hypothesis was that buyers who cannot tell the difference between a lemon and a peach will be unwilling to pay the full price of a peach, as they are unsure of its value. As a result, sellers would come to the conclusion that selling a peach would no longer be in their best interest, as there would be no buyers willing to pay its full price. Accordingly, the used car market would only offer defective cars, leading to its eventual collapse.

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March 11, 2018