Many studies by FTC economists and others show that allowing stores to advertise their prices lowers the average price that consumers pay for products such as drugs, eyeglasses, liquor, toys, and gasoline. Years ago, some states banned the advertising of eyeglass prices. Benham (1972) found that banning all advertising raised prices by 28% relative to the prices in states without bans. The price difference was negligible, however, between states that allowed advertising and those that banned only price advertising.

A subsequent FTC study (Bond, Kwoka, Phelan, and Whitten, 1980) on eyeglass advertising found that prices were lower in cities that allowed advertising than in those that banned it. In cities without advertising bans, even optometrists who did not advertise charged an average of $20 less for an exam and glasses than their counterparts in cities that banned advertising. Moreover, this study found that eyeglass quality was the same in cities with and without the ban.

Because advertising can lower prices in a market, professional groups try to ban it. Until Supreme Court decisions stopped them, medical, dental, and legal organizations blocked advertising, claiming that it was unprofessional. Today, many of these professionals advertise in newspapers and the Yellow Pages and on radio and television. Some law firms issue press releases after trial victories, mail brochures to prospective clients, and hire public relations firms to help penetrate the market. Schroeter, Smith, and Cox (1987) found that the cost of legal services for simple wills and uncontested bankruptcy proceedings fell with advertising.

SOURCES:

Benham (1972); Bond, Kwoka, Phelan, and Whitten (1980); Schroeter, Smith, and Cox (1987).