A Healthy Dose of Advertising

A recent Yale Rudd Center for Food Policy and Obesity study begged the question, "Why do cereal companies spend $229 million to advertise to children?"

Survey says?  Food and beverage company ads appear on a wide range of television programming, including shows that are intended primarily for a wide range of specific age groups.  Advertising is critical to the competition on which consumers depend for information, innovation and savings.  Many studies have found that advertising lowers prices and fosters innovation, while ad restrictions do just the opposite.  For a study of the cereal industry, see advertising Restrictions and Competition in the Children's Breakfast Cereal Industry, by C. Robert Clark, The Journal of Law and Economics, vol. 50 (November 2007), available here.

Abstract: "In this article I analyze the consequences of advertising in the children's breakfast cereal market.  I take advantage of the prohibition on advertising directed at children in the Provence of Quebec to examine the nature of advertising and to determine whether the restriction hinders competition.  I show that prices are higher in Quebec than in Canadian provinces that permit advertising.  This finding suggests that the informative role of advertising dominates any persuasive role, since them most likely explanation is that the restriction prevented firms from announcing products' existence or characteristics and thus from overcoming perceived differentiation.  If advertising is informative, restricting it should increase the market shares of older, better-known brands and decrease the market shared of newer and/or less well known brands.  Empirical analysis supports this prediction: market shares of established brands are larger in Quebec than in the rest of Canada, and the opposite is true for non-established brands." - Restrictions and Competition in the Children's Breakfast Cereal Industry, by C. Robert Clark

Riddle me this:  Did you know that food and beverage companies that account for over 80% of all food and beverage TV advertising to children under the age of 12 participate in The Children's Food and Beverage Advertising Initiative (CFBAI), launched in 2006 under the auspices of the Council of Better Business Bureaus.  Each company prepared a pledge that describes its commitment (these can be found here).  Regular reports from the CFBAI indicate almost every company participating has pledge to devote all of their advertising to children under 12 to promote improved dietary choices, or has not advertised to that age group at all.

Also, A recent Georgetown Economic Services study found that children saw nearly 10 percent fewer food and beverage ads on children's TV in 2007 than 2006, and that there was a 25% decline between 2004 and 2007.  Today children are seeing far fewer ads for soft drinks, cookies, snacks and candy, while being exposed to more ads for soups, juices, fruits and vegetables than they were in 2004.  Specifically, the report showed that from 2004-2007 children ages 2-11 saw 26% fewer cereal ads on television.