AllClean knows that it produces and sells very effective laundry detergent. NotQuiteWhite knows that it produces and sells ineffective laundry detergent. According to the signaling theory of advertising,
A)both AllClean and NotQuiteWhite have incentives to spend large amounts of money on advertising their products.
B)AllClean has an incentive to spend a large amount of money on advertising its detergent, but NotQuiteWhite does not.
C)NotQuiteWhite has an incentive to spend a large amount of money on advertising its detergent, but AllClean does not.
D)neither AllClean nor NotQuiteWhite has an incentive to spend a large amount of money on advertising their detergents.

Question

Quizplus · Accepted Answer

According to the signaling theory of advertising, firms with high-quality products have an incentive to spend more on advertising to signal their quality, while firms with low-quality products have less incentive to advertise. Therefore, AllClean, which produces effective laundry detergent, has an incentive to spend a large amount of money on advertising to signal its quality. NotQuiteWhite, on the other hand, produces ineffective laundry detergent and therefore has less incentive to spend a large amount of money on advertising.

AllClean Knows That It Produces and Sells Very Effective Laundry