Game Theory (or "How banning tobacco advertising benefited tobacoo companies")

[Ashley_Price]

I was just listening to a clip from QI about Game Theory and it made an interesting point about advertising.

For those that don't know about Game Theory, to quote from Wikipedia: "Game theory is the study of mathematical models of strategic interaction between rational decision-makers." (Some of you may know of Game Theory from the film "A Beautiful Mind".)

Anyway, it has been applied to lots of different areas, including economics, marketing, etc.

Stephen Fry on QI was using the following example:

If two companies both advertise a similar product, then they basically spend a lot of money advertising only to cancel each other out.

However, if neither advertises, then the market stays the same.

Therefore, when tobacco advertising was banned, it was actually to the benefit of the tobacco companies, because they saved all the money that they had basically been "wasting" on advertising.

So, it could be to the benefit of you and your competitors NOT to advertise.

 

[Mr D]

Helps if the market is well known.

The measures taken to ban display and advertising, be interesting to see if that also impacted the sales of the product. Forbidden fruit?

 

[mattk]

Presumably, the above only holds true if the purpose of marketing is to convince you to smoke one brand rather than another and not to encourage you to smoke in the first place?

 

[Jeff FV]

It (whether to advertise or not) is an example of The Prisoners Dilema, the classic game theory scenario.

Two members (A and B) of a gang are arrested, and kept apart in solitary confinement. They police have enough evidence to convict but th on minor charges, but would like more - a confession that incriminates the other. The prisoners are given the following options:

• If A and B each betray the other, each of them serves two years in prison
• If A betrays B but B remains silent, A will be set free and B will serve three years in prison (and vice versa)
• If A and B both remain silent, both of them will only serve one year in prison (on the lesser charge).

So the optimum solution is for both to remain silent (or, in your example, neither company to advertise) but if you keep quiet (don’t advertise) and your oppo does, its bad for you.

Now our gang members may have honour amongst thieves and keep stum, the companies, however, are less likely to do so.

The tobacco example is interesting, all though it ceases to be a problem in game theory as they now no longer have the option to advertise.

A quite interesting post, thank you.

 

[Mr D]

Presumably, the above only holds true if the purpose of marketing is to convince you to smoke one brand rather than another and not to encourage you to smoke in the first place?

I've met many smokers. Related to a few too.
Never met anyone who admits to taking up smoking due to TV / print adverts or nice looking packaging.

 

[Paul Murray]

Presumably, the above only holds true if the purpose of marketing is to convince you to smoke one brand rather than another and not to encourage you to smoke in the first place?

This reminds me of one of the scenes in Mad Med. "The question isn't why should people smoke, the questions why should people smoke Lucky Strike?"

The only advertising for cigarettes I can recall from before it was banned was the ones for Lambert & Butler, mainly because of they riffed off of the 'comedy duo' idea. I did buy a packet of Lambert & Butler when I turned 16, but that was mainly because they were the cheapest (and thus, was the brand that was popular at school).

I'd be curious to see research about cigarette buying habits before and after the advertising ban. I wonder how new smokers picked a brand when they weren't advertised? Presumably a mixture of cost and exposure to the brand, much like my teenage experience?

 

[Gecko001]

QI is full of this bland drivel where the obvious is stated but it is of no consequence when looking at the bigger picture. Advertising promotes cigarettes. Government decided that it was a bad idea to promote cigarettes. Cigarette factories closed, people lost their jobs, tobacconists closed etc. etc. partly as a result of government actions on cigarette promotions. Those people got other jobs (most of them anyway). The bigger picture was the premature death of people through active and passive smoking.

 

[Mr D]

QI is full of this bland drivel where the obvious is stated but it is of no consequence when looking at the bigger picture. Advertising promotes cigarettes. Government decided that it was a bad idea to promote cigarettes. Cigarette factories closed, people lost their jobs, tobacconists closed etc. etc. partly as a result of government actions on cigarette promotions. Those people got other jobs (most of them anyway). The bigger picture was the premature death of people through active and passive smoking.

Government don't mind some premature deaths. Their ideal can be you be a health child, healthy adult then day after you retire you drop dead. Cost to government from you is minimal (about as minimal as you can get for a native).
Less ideal from government point of view is you develop medical needs while working and live a few decades after retiring with overall increasing medical and care needs.

From individual point of view many appear willing and even eager to live as long as they can.

Seriously government want taxes from the sale of a particular drug while at the same time curbing behaviour of people through taxation and education.
Getting rid of the drug is not seen as a viable option - they cannot get rid of the illegal drugs so may as well make some money on this one. Consequence of the drug is increased risks of several health issues.

 

[Noah]

Presumably, the above only holds true if the purpose of marketing is to convince you to smoke one brand rather than another and not to encourage you to smoke in the first place?

Point well made, and exposes a major problem with trying to scientifically model human behaviour. Inevitably, game theory and similar approaches all just use a limited context, assumptions, and artificial rules, to produce simplistic models (if they were complete they would produce... well, real life).

Best if stuff like game theory is used as an insight into why people or organisations behave as they do rather than predicting behaviour. Unless you want people to pay you money for predicting, of course.

 

[Deleted member 59730]

If two companies both advertise a similar product, then they basically spend a lot of money advertising only to cancel each other out.

Surely this depends on how good the advertising is. If one company makes an ad which doesn't connect with their target audience and another connects very well there is a difference. Detergents are a good example. There are 2 companies, Unilever and P&G, and they both have several brand names. Why do they not have just one brand each? Its because they differentiate the market to different types.

Why did they not introduce low temperature powders into the UK market sooner than they did? Low temp. powders were available in Africa for years before they were sold in the UK. The reason is that the British public thought washing needed hot water and were slow to learn the cooler settings on their washing machines.