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Advertising without signal: The rise of the grifter equilibrium
Economists credit ads with two welfare‑enhancing roles: 1. Informative – trimming search costs (Stigler 1961 (pdf)). 2. Signaling – In classic models, high-quality sellers are more willing to incur large, sunk ad costs because they expect to recoup them through future sales—especially in experience-good markets where quality is learned over
Signaling – In classic models, high-quality sellers are more willing to incur large, sunk ad costs because they expect to recoup them through future sales—especially in experience-good markets where quality is learned over time ( Nelson 1974). Disposable brand identities Launching a fresh storefront requires packaging, photography, and a seed set of paid or incentivized reviews; yet, those outlays are tiny relative to the lifetime margin on a successful listing. These frictions reinforce one another: CPA funding keeps every storefront bidding; fake reviews mask quality gaps; disposable brands dodge reputational blowback; and behavioural heuristics close the sale—locking the marketplace into what we call the grifter equilibrium.
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