This document discusses advertising regulation in the United States. It begins by outlining the economic impact of advertising, including how it can affect product values, prices, competition, and consumer demand and choice. It then describes the various government agencies that regulate advertising, such as the FCC, FTC, and FDA. It also discusses state and local advertising laws as well as self-regulation by non-government organizations. Finally, it examines some current regulatory issues in advertising including debates around commercial free speech, tobacco advertising, advertising to children, and consumer privacy.

1. Advertising’s Economic Impact & The Regulation of Advertising

3. Laundry detergent

4. Shampoo

5. Paper towels

6. Toilet paper

8. Soup

9. Fast food

10. Pizza

12. Jeans

13. Tennis shoes

14. Pain reliever

15. Cell phone

17. Today’s Objectives Discuss the impact of advertising on the economy Describe how government agencies regulate advertising to protect both consumers and competitors Discuss the activities of nongovernment organizations in fighting fraudulent and deceptive advertising

18. Economic Impact Free-Market Principles Self-interest Completeinformation Many buyers& sellers Absence ofexternalities

20. Prices & competition

21. Consumer demand

23. Shoes

24. Cars

25. Hairstyles

27. Product Value Answer: B, A, C A B C Gucci, $585 Lucky, $90 Levi’s, $20 Source: walmart.com Source: Gucci.com Source: luckybrand.com

30. In retail, consumer focus on price drives prices down through competition= 1 cent on advertising Photo c/o Coca-Cola Company

33. Consumer Demand Primary vs. Secondary Demand Advertising can drive sales of an entire product class or of a brand. Primary Demand: Grow demand for industry, product class Secondary Demand: Grow demand for a specific brand Source: inventorspot.com Source: organicvalley.com

35. Advertisers compete for shares of growth

36. Brands may increase

38. Brands may decrease

39. Prices decrease

41. The market may segment itself (luxury)

42. Advertisers compete for each other’s shares to maintain revenue

43. Brands may decrease

45. The Abundance Principle Self-interest Completeinformation Absence ofexternalities Many buyers& sellers In an economy that produces more goods & services than can be consumed, advertising: Allows more effective competition Keeps consumers informed of alternatives Stimulates competition Self-regulates to keep market free & open

46. Broadcast media licensing Examples: programming times and stations for ED drugs , Janet Jackson’s “wardrobe malfunction” Deceptive, unfair, & comparative ads Example: Activia claim to improve digestion http://www.youtube.com/watch?v=9j9nRJgX5iQ Definitions and labeling of consumer packaged goods and drugs Examples: pharma side effects, Yaz retraction http://www.youtube.com/watch?v=EO-G8O0lHq0 Intellectual property Examples: Coca-Cola logo, contour bottle design, secret formula. Copyrights “works of authorship” Example: GEICO advertising campaigns Federal Regulation Agencies These are the federal departments and agencies that regulate advertising and their areas of responsibility: FCC Federal Communications Commission FTC Federal Trade Commission FDA Food & Drug Administration Patent & Trademark Office Library of Congress

47. FDA Disclosure This ad for Revolution, a topical parasiticide for dogs and cats, has a long disclosure

48. State & Local Regulation Different states have different regulations governing advertising E.g. NC law requires businesses to get a permit before advertising an “out of business” sale National marketers comply with states’ laws Local government regulation: city & county consumer protection agencies

50. National Advertising Review Council (NARC)

51. National Advertising Division (NAD)

52. National Advertising Review Board (NARB)

53. Regulation by the media

55. Self-Regulation: AAF Principles

56. International Advertising Foreign governments often regulate advertising more strictly than in the United States Some governments ban specific products Many countries prohibit puffery Many European countries ban coupons, premiums and free tie-ins Across Europe, paid product placements in television programs are typically prohibited Examples from France: Alcoholic beverage companies are banned from sponsoring sporting events, prohibited from advertising on TV, and alcohol advertisements are very restricted in other media. All words in advertisements must be in French, even if the word or phrase is more common in another language. Sources: 1) FTC, www.ftc.org 2) International Business Law and Its Environment, R. Schaffer, F. Agusti & B. Earle, 2008

57. Supreme Court: “speech” or “commercial speech” Tobacco Controversy Consumer Privacy Current U.S. Regulatory Issues Advertising to Children

59. Does restriction serve the government interest?

60. Does regulation advance the government interest?

61. Is the restriction no more than necessary to further the interest?(Case: Central Hudson Gas v. Public Service Commission) In 1993, they determined that the distribution of advertising is as protected as distributing newspapers.

63. No outdoor advertising

64. No sponsorships at events with youth oriented audience

65. No cartoon characters in advertisingLucky Strikes cartoon ad, 1955: http://www.classictvads.com/classicindex.shtml Goodbye, Joe!

66. Santa had to quit, too!

67. Advertising to Children Current U.S. Regulatory Issues Come on… No one would ever advertise inappropriately to / with children! Would they?

72. Advertising to Children Current U.S. Regulatory Issues Kids are not sophisticated consumers and can’t be treated as such. The Council of Better Business Bureaus established the Children’s Advertising Review Unit (CARU). CARU reviews and evaluates advertising directed at children. CARU seeks voluntary cooperation from advertisers in advertising to children under age 12 (page 41 of text). M&M’s commercial, 1980s: http://www.youtube.com/watch?v=gBZoTxUMPZI M&M’s commercial, today: http://www.youtube.com/watch?v=YEiFIKBPUq8

74. The ability of companies to track behavior online

75. SPAM emailsFor now, the only regulation is self regulation.