ADVERTISING, CONSUMER SEARCH COSTS AND PRICES IN A PROFESSIONAL SERVICE MARKET

Since Stigler's (1961) seminal article on the economics of information it has been argued that producer advertising is a substitute for consumer search. This view of advertising has been implicit in recent liberalization of restrictions on advertising by professionals (e.g. lawyers, doctors, accountants, etc.). Using the model of the price-discriminating professional developed by Masson and Wu (1974) the impact of solicitor advertising on the level of conveyancing fees charged by a sample of Scottish Solicitors is estimated. The analysis distinguishes between different forms of advertising. The advertising-of-information theory cannot be rejected for some forms of advertising in one (property value) submarket but it can be in the other (higher property value) submarket. The evidence here rejects (i) the view that all advertising is a substitute for consumer search and (ii) the view that actions to reduce search costs (such as advertising) necessarily reduce price discrimination.