1. 1 Milyo_Waldfogel paper, G604, Rasmusen, April 16, 2003

2. 2 Does Price Advertising Reduce Average Price? Stigler (1961, JPE, “The Value of Information”) Ads reduce prices at all stores. Salop and Stiglitz, (1977 REStud, “Bargains and Ripoffs”) Ads have complicated effects. Benham (1972) Eyeglass paper, empirical. State laws. Ads reduce prices. Glazer (1981) empirical. Groceries. Newspaper strike. Conclusion: Advertising reduces the price of advertised products at stores that advertise, but has not effect on prices at smaller stores that never advertise. (i.e.: during the strike, the big stores’ prices went up)

3. 3 Does Price Advertising Reduce Average Price? Stigler (1961, JPE, “The Value of Information”) Ads reduce prices at all stores. Salop and Stiglitz, (1977 REStud, “Bargains and Ripoffs”) Ads have complicated effects. Benham (1972) Eyeglass paper, empirical. State laws. Ads reduce prices. Glazer (1981) empirical. Groceries. Newspaper strike. Conclusion: Advertising reduces the price of advertised products at stores that advertise, but has not effect on prices at smaller stores that never advertise. (i.e.: during the strike, the big stores’ prices went up)

4. 4 The y-Variables PRICE: Log of price MARKUP: Log(retail price – wholesale price) Why not the following? MARKUP* (Retail Price)/(Wholesale price)

5. 5 Which Stores Chose to Advertise? Was it the low-price stores that chose to advertise after the Supreme Court said it was legal? MW regressed Log OldPrice = Product Dummies +_Time Dummies + JustWindow Ads + NewspaperAds Stores that advertised just in the windows (24 of 58) had 5.61% lower prices before May 1996 (t=9.92) Stores that advertised in newspapers (?? of 58) had 7.71% lower prices before May 1996 (t=9.83) (9 of 58, earlier on the page)

6. 6 Conclusions 1.Prices of advertised products fell 20% at stores that advertised them, but their other prices did not change. 2. Newspaper-advertising stores reduced their prices of a product if rivals advertised it.