Infernal Ramblings
A Malaysian Perspective on Politics, Society and Economics

Product Placement and Information Asymmetry

Written by johnleemk on 9:04:24 am Jul 13, 2007.
Categories: ,

One thing people (including myself) like to whinge about these days is product placement — the insertion of a commercial product into an entertainment piece simply for the sake of the entertainer's finances.

You've got to admit, it can break the mood sometimes — the 2006 Casino Royale film featured scenes which could be used with minimal or no editing and taken verbatim as Sony advertisements, while the 2007 Transformers features a close-up of a memory chip for no apparent reason other than to advertise Panasonic products.

However, most people take the wiser stand that no government regulation should be implemented to restrict product placement — a good movie is a good movie, whether it advertises products or not. If a piece of art goes overboard on its product placement, people won't like it, and it will die out — the beauty of the free market, eh?

Allow me, though, to be the Devil's advocate and ponder the possibility of an opposing argument. What evidence is there of a market failure here, something which would justify government intervention?

The most striking problem I can see is what in economic jargon is known as information asymmetry. In layman's terms, the problem is that the entertainer — be it the filmmaker or the novelist — knows that they have used product placement, but the consumer does not until he or she actually buys and consumes the product.

It seems a bit of a whimsical place for an economic problem, but information asymmetry has always been one of the quirkier aspects of economics. The man who made it into a huge area of study, George Akerlof, won the Nobel Prize for examining why second-hand cars can't be sold — because the seller knows whether the car is good or bad, but the buyer does not.

By the time I found out about the blatant product placement in movies like Casino Royale and Transformers, it was a little too late to do anything to register my protest through the market (let's assume that I really hate product placement and won't stand for it). I could have walked out and asked for my money back, knowing that most theatre managers won't care and just give me the refund, but this won't work every time.

When there exists information asymmetry, there are usually ways to overcome it without government intervention, but these are inefficient methods.

One way would be to look for signals. Used car sellers may build fancy showrooms to prove that they are no fly-by-night operation, and stand by the worth of their products. Similarly, I could look for artistes who are known to be blatant shills for commercial product placement, and avoid their work.

There are obvious inefficiencies, of course. I run the risk of avoiding a movie or book with minimal or no product placement, simply because I discriminated against it on the basis that its creator has a track record of product placement.

Moreover, the signal I send to the producer is not very clear. The producer might think I don't like the director's style or the novelist's characterisation, rather than the product placement. Correcting this requires yet another inefficiency — communicating directly with the producers:

Dear Michael Bay,

I recently had the great displeasure of watching your film, Transformers, which was littered with blatant advertisements for, among other things, the Camaro, General Motors, the Pontiac Solstice, Apple, Panasonic, Nokia, Japanese robots, and the armed forces of the United States. The final straw for me was when an overacting extra exclaimed that the Autobots' landing was a hundred times better than Armageddon, a movie you made ten years ago that nobody cares about now except for its Aerosmith theme, "I Don't Wanna Miss A Thing".

For this reason, I will no longer be watching any of your movies, and will tell my friends to do the same.

A bitchy made-up character
So, what ought to be our final conclusion about product placement? Considering that nobody (except for maybe one or two communist hippies) cares enough about product placement to walk out of a movie or return a novel and demand their money back, we can assume this information asymmetry is an insufficiently large problem for us to be worried about. We can, however, note down the problem of product placement as an interesting illustration of the pitfalls of a market where information is not equally shared.

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