In a recent radio podcast, “How to Save $1 Billion Without Even Trying” (http://bit.ly/101IvUD), Freakonomics author Stephen J. Dubner is speaking with several experts on why people buy national products over private label or vice versa. The question comes up: Why would people pay more for an item when a less expensive duplicate is available?
Matthew Gentzkow, professor of economics at the University of Chicago Booth School of Business, likes to kick off such thoughts with a look at the basic background questions. He asks: “What is advertising and branding and all this stuff that companies spend so much effort on really about? Is it fundamentally about trying to inform consumers, help them make good decisions, help them identify what are the best products so they can buy them? Or, at the other extreme as a lot of people have speculated, is it really about trying to confuse people, cause them to make mistakes, convince them that stuff that really is not any better is, and get them to pay a lot of money for it?”