Advertising and Welfare: Reply

Abstract

? Fisher and McGowan (hereafter F-M), commenting on our paper (hereafter D-N), claim that our "very setup assumes that utility is generated by adver? tising." In so doing, it appears to us that they have a hedonic interpretation of utility: It really measures pleasure. To us, utility is a mere numerical rep? resentation of a preference ordering. No automatic significance attaches to comparisons of different representations when preferences shift. The question then arises: What are preferences defined over? We would argue that the whole history of debates on consumer theory supports the position that preferences are defined over quantities of goods or their Lancastrian characteristics. A parameter?such as advertising?that does the job of shifting preference orderings as tastes change does not necessarily itself become an object over which preferences are defined. To see what is involved, suppose a vector x of quantities of goods and a vector f3 of product quality parameters together yield a vector z of char? acteristics, with z = g(x,0) (1)