What is the function of advertisement?

The function of advertisement is simply to help companies to earn more revenues. To earn more revenues has two ways: the first is to attract more people to buy, the other is to convince existing customers to accept higher prices. Previously I argued that customers might not have exact figures about their expected utilities for particular products including both goods and services, so the customers could usually accept a range of prices with different probabilities for different prices. Therefore, under such hypothesis, the function of advertisement is to increase customers‘ probabilities to accept  higher prices.

To convince customers’ probabilities to accept higher prices can both to increase the number of potential customers and to increase existing customers’ acceptances of higher prices. The most important reason for people not buying goods or services is because they do not accept the products’ prices. When advertise is effective to increase people’s probabilities of accepting higher prices, it means two things. For higher prices, people are more likely to accept the higher prices, implying existing customers are likely to be willing to pay higher prices; on the other hand, at a particular price level, more people of the population are likely to accept this particular price, implying more people are likely to buy the products given their prices.

Based on this hypothesis, all advertise should aim to increase people’s acceptance of higher prices, this applies to all kinds of products and services, not only when advertising luxury products. When increasing people’s acceptance of prices, even when the prices do not change, more people are likely to buy the products, as more people become willing to accept the prices.