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It is possible to argue that marketing efforts do not add to the cost of a product. We can say this because they do not actually have anything to do with the making of the product. For example, let us think about the Coca-Cola company. This company spends a lot of money on marketing. But none of this money actually helps in any way to make a single can of Coke. The only things that add to the cost of the can of Coke are things like the sugar in the drink, the aluminum in the can, and the labor that went into making the can and the soda. We would not include the marketing costs because they were not actually involved in making the soda.
However, we could also say that the cost of marketing efforts does indeed add to the cost of making a product. This is because the marketing efforts add to the overall costs incurred by the company. In a sense, every dollar that the Coca-Cola company spends is spent on making Coke (and the other products that the company produces). It is true that marketing costs (and things like the salaries of secretaries and company executives and other people not directly involved in making soda) are not part of the actual making of the soda. However, none of these costs would exist if it were not for the company’s core business of producing soda. Therefore, we can argue that the cost of marketing does add to the cost of making a product.
In my view, the latter argument is the more persuasive. The soda that the Coca-Cola company makes has to bring in revenue to pay for everything that the company does. Marketing adds to the costs that the revenue from soda must cover. Therefore, it adds (in my mind) to the cost of the product.
Whether advertisement adds cost to a product can also be examined in a different way. Is the cost of the advertisement greater than the additional sales due to advertisement, causing a net cost, or is the cost of the advertisement less than the additional sales, causing a net gain? This situation is often likened to the prisoner's dilemma. There are two prisoners, A and B, who can either rat out the other to the police or remain silent. If A and B both betray the other, each of them serves 2 years in prison. If A betrays but B remains silent, A will be set free and B will serve 3 years in prison (and vice versa). If A and B both remain silent, both of them will only serve 1 year in prison. Two betrayals results in a total 4 year charge between the two of them. One betrayal results in a total of a 3 year charge between the two of them. No betrayal results in a total of 2 years of charge between the two of them. So, staying silent is the best option, right? Not if the two prisoners are acting independently. This type of thinking, which considers the total amount of years served between the two, would occur if the prisoners consulted with each other. However, these two prisoners are in competition and act independently, like companies. One prisoner would think more like this: If I betray while he stays silent, I serve no time. If I betray while he betrays, I serve two years. If I stay silent while he stays silent, I serve one year. If I stay silent while he betrays, I serve three years. It is better to betray because I will serve less time both when he betrays (2 vs 3) and when he stays silent (0 vs 1). Because betrayal is the best option when picking independently, both prisoners will pick it. This results in both serving 2 years, which is more than the 1 year they would be serving had they not spoken. So, the prisoners are worse off. This also occurs when advertising. When thinking independently, the two companies end up advertising, but they will end up losing money by doing so. This means that advertising does add to the cost of the product. (Try drawing it out in a chart so it makes more sense. In the case of advertising, two advertisings results in 1 billion dollar profit for both, one advertsing results in one company earning 3 billion and the other 0.5 billion, and no advertising results in 2 billion dollar profits for both.)
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