I Can See Clearly Now: Lee Benham, Eyeglasses, and the Empirical Analysis of Advertising and the Effects of Professional Regulation
- Author(s): Bruce Kobayashi, Timothy Muris
- Date Posted: 2016
- Law & Economics #: 16-16
- Availability: Full text (most recent) on SSRN
Lee Benham’s 1972 article, The Effect of Advertising on the Price of Eyeglasses, represents an early, highly influential example of the now common empirical methodology in law and economics where the variation between state laws permits natural “experiments” to study the effects of different approaches to regulation. Benham found that mean prices of eyeglasses in states that prohibit advertising by optometrists were $6.70 (25 percent) higher than in states that did not prohibit such advertising. Cross-section regression analyses also found significant increases in the price of eyeglasses in states with complete restrictions on advertising, with average prices in such states $7.48 higher. Benham’s main result was robust to the inclusion of a variable to control for entry restrictions. He also found that mean prices for eyeglasses in states that banned only price advertising were higher than in states with no restrictions, but lower than in states with complete advertising restrictions. These striking results challenged the existing conventional economic wisdom that the costs of advertising raised market prices. Benham provided tangible and concrete evidence of both the costs of economic regulation to consumers and the likely beneficiaries of such regulation.