A Strategy for Consumer Protection in Pakistan

Government is relying increasingly on the market mechanism for economic management. The underlying perfect competition model assures maximum welfare of consumer, but assumptions of the model do not hold in real world. Consumer is central to economic activity but at the same time is vulnerable to exploitation by producers, misleading information, ignorance of his rights and non-availability of redress mechanism. Markets may be competitive but the consumers may suffer on account of imperfect information, search and transport costs needed to make satisfactory choices. This creates the need for government intervention for protecting the consumer welfare and rights. This paper explains why a consumer protection policy is needed in a situation of ‘competitive’ markets and looks into consumer protection strategies followed in some other countries. The area of consumer protection in Pakistan has remained neglected so far and no meaningful effort has been made in this direction. Realising this gap, the paper chalks out a consumer protection strategy for Pakistan; which goes beyond mere formulation of legislation and also includes consistent efforts towards awareness creation, provision of information/advice, setting of quality standards and redress. In the long run the efforts should continue in the from of research, formation/strengthening of consumer pressure groups and regional cooperation.

Increasing Dominance - the Role of Advertising, Pricing and Product Design

Despite the empirical relevance of advertising strategies in concentrated markets, the economics literature is largely silent on the effect of persuasive advertising strategies on pricing, market structure and increasing (or decreasing) dominance. In a simple model of persuasive advertising and pricing with differentiated goods, we analyze the interdependencies between ex-ante asymmetries in consumer appeal, advertising and prices. Products with larger initial appeal to consumers will be advertised more heavily but priced at a higher level - that is, advertising and price discounts are strategic substitutes for products with asymmetric initial appeal. We find that the escalating effect of advertising dominates the moderating effect of pricing so that post-competition market shares are more asymmetric than pre-competition differences in consumer appeal. We further find that collusive advertising (but competitive pricing) generates the same market outcomes, and that network effects lead to even more extreme market outcomes, both directly and via the effect on advertising

Increasing Dominance - the Role of Advertising, Pricing and Product Design

Despite the empirical relevance of advertising strategies in concentrated markets, the economics literature is largely silent on the effect of persuasive advertising strategies on pricing, market structure and increasing (or decreasing) dominance. In a simple model of persuasive advertising and pricing with differentiated goods, we analyze the interdependencies between ex-ante asymmetries in consumer appeal, advertising and prices. Products with larger initial appeal to consumers will be advertised more heavily but priced at a higher level - that is, advertising and price discounts are strategic substitutes for products with asymmetric initial appeal. We find that the escalating effect of advertising dominates the moderating effect of pricing so that post-competition market shares are more asymmetric than pre-competition differences in consumer appeal. We further find that collusive advertising (but competitive pricing) generates the same market outcomes, and that network effects lead to even more extreme market outcomes, both directly and via the effect on advertising.Increasing dominance; persuasive advertising; duopoly; network effects

Advertising, Labor Supply and the Aggregate Economy. A long run Analysis

This paper studies the influence of persuasive advertising in a neoclassical growth model with monopolistically competitive firms. Our findings show that advertising can significantly affect the stationary equilibrium of a model economy in which the labor supply is endogenous. In this case, for empirically plausible calibrations, we find that the equilibrium level of hours worked, GDP, and consumption increase with the amount of resources invested in advertising. These findings are consistent with a new stylized fact provided in this paper: over the past decade, per-capita advertising expenditures have been positively correlated with per-capita output, consumption and hours worked across OECD countries. Because of the connection between advertising and labor supply, we show that our model improves on its neoclassical counterpart in explaining both within-country and cross-country variability of hours worked per capita.Advertising, Labor Wedge, Labor supply, Economic Growth, Hours Worked.

Advertising's Elusive Economic Rationale: Public Policy and Taxation

Advertising and its effects have been debated for well over a century. In the last fewdecades a generally sceptical view of the benefits of advertising has been overturned by a series ofacademic advances in economics that detail a variety of ways in which advertising may affect theeconomy and society. This academic work has however been paralleled by a growing popular andpolitical opposition to advertising and its social effects. In this paper, the positive economic case foradvertising is challenged by an assessment of the main channels of its influence and by a review ofthe associated empirical findings on its economic and wider impact. A policy response of limitingthe tax deductibility of business advertising is explored

Advertising Expenditure and Consumer Prices

This paper studies the effect of a change in the marginal costs of advertising on advertising expenditures of firms and consumer prices across industries. It makes use of a unique policy change that caused a decrease of the taxation on advertising expenditures in parts of Austria and a simultaneous increase in other parts. Advertising expenditures move immediately in the opposite direction to the marginal costs of advertising. Simultaneously the price reaction to advertising is negative in some industries (food, education) and positive in other industries (alcohol, tobacco, transportation, hotels and restaurants), depending on the information content of advertising. The paper reconciles these findings using a model that contains informative and persuasive forces of advertising.Advertising, taxation of advertising, effects of advertising

A Strategy for Consumer Protection in Pakistan

Government is relying increasingly on the market mechanism for economic management. The underlying perfect competition model assures maximum welfare of consumer, but assumptions of the model do not hold in real world. Consumer is central to economic activity but at the same time is vulnerable to exploitation by producers, misleading information, ignorance of his rights and non-availability of redress mechanism. Markets may be competitive but the consumers may suffer on account of imperfect information, search and transport costs needed to make satisfactory choices. This creates the need for government intervention for protecting the consumer welfare and rights. This paper explains why a consumer protection policy is needed in a situation of ‘competitive’ markets and looks into consumer protection strategies followed in some other countries. The area of consumer protection in Pakistan has remained neglected so far and no meaningful effort has been made in this direction. Realising this gap, the paper chalks out a consumer protection strategy for Pakistan; which goes beyond mere formulation of legislation and also includes consistent efforts towards awareness creation, provision of information/advice, setting of quality standards and redress. In the long run the efforts should continue in the from of research, formation/strengthening of consumer pressure groups and regional cooperation

Non-price Competition, Real Rigidities and Inflation Dynamics

In the last decade, the analytical progress achieved in the New Keynesian literature has been remarkable. Many of the early assumptions have been relaxed, leading to medium-scale macroeconomic models that are now able to capture many features of real-world data. Nevertheless, modern-day New Keynesian models still assume, as did their early counterparts, that firms compete in the market with no tools other than their relative prices. In particular, this literature has so far neglected the consequences of extending competition between firms to the non-price dimension. This paper tries to fill this gap by enriching the canonical New Keynesian framework to include both price and non-price competition. This has important consequences for the analysis of inflation dynamics, modifying in particular the inflation-marginal cost relationship. As a general result, we show that any activity by firms that boosts demand for their products, without directly affecting their prices, dampens the overall degree of real rigidities in price-setting.Non-price competition, inflation dynamics, real rigidity