September 26, 2008 — Simon Anderson is a theorist: he creates economic models to explain different phenomena that occur in the market. His research lies at the intersection of economics and marketing. As such, it straddles the boundaries of a number of other fields, including mathematics and statistics as well as psychology and law.
"In some sense, what's neat about economics is that you can bring in all sorts of ideas from elsewhere," said Anderson, Commonwealth Professor of Economics at the University of Virginia.
Anderson's research on economic models for advertising has earned consistent funding from the National Science Foundation, most recently in the form of a three-year, $116,000 grant. The funding will support research into two strains of advertising economics: information overload and comparative advertising.
Information overload is a predicament for both advertisers and consumers. Consumers face an endless barrage of unsolicited advertisements every day, from television and radio ads to billboards and e-mail spam.
"Faced with this bombardment of advertising messages, the reasonable thing consumers do is screen out a lot of this information," Anderson said. "There are estimates of the amount of messages people get per day — from 247 up to 5,000 messages per day — and reasonably one cannot take in and absorb all of these messages."
An excess of messages means that advertisers have to ramp up their advertising even more — in effect, they have to shout to be heard by the consumer. With all of this clutter, even messages that consumers find useful are crowded out.
Anderson examines the economics behind information overload — how it ultimately affects markets, as well as the consumer and the advertiser. Such work could ultimately influence the price of bulk mail or the Federal Trade Commission's "National Do Not Call Registry," which allows individuals to opt out of receiving telemarketing calls.
The other portion of Anderson's NSF project will evaluate comparative advertising among over-the-counter analgesics in the U.S. Comparative advertising is when one company specifically mentions or compares their product to a rival's product.
"Comparative advertising is when Advil says ‘We are stronger and act faster and than Tylenol,'" Anderson said.
Anderson is working with U.Va. Department of Economics colleague Federico Ciliberto, graduate student Jura Liaukonyte and French co-author Regis Renault to evaluate a whole host of data about analgesics in the U.S., including their prices, sales and advertising budgets. Liaukonyte has analyzed video files of all pain reliever ads aired from 2001 to 2005.
With this information, the researchers can build a matrix to help them understand which companies are attacking each other, and on what basis.
Their work could have national policy implications. Anderson notes that the Federal Trade Commission currently encourages comparative advertising as long as it is not misleading.
"They think that comparative advertising gives consumers better choices and it fosters competition," Anderson said. His theoretical and practical research in this area will put these hypotheses to the test.