NetJets, the world leader in fractional ownership in business jets put out an attention-grabbing advertising in The Economist this week. I don’t pay much attention to advertising in general and I ignore most ads in The Economist (or so it seems to me). So coming across an ad that grabbed my attention was novelty, and it reminded me of some of the issues around the economics of advertising.
Over the last two centuries, economists have had many strange (and possibly useless) debates. One of them was about the role of advertising. In the 1950s and 1960s many economists held the view that advertising was not part of a firm’s production costs and thus was a waste. One of the best responses came from the Austrian camp with Israel Kirzner who argued that advertising plays a very important role in alerting people about an opportunity available to them. Advertising is a crucial component of the entrepreneurial process (e.g. see Kirzner’s Competition and Entrepreneurship and the foreword to Advertising and the Market Process).
Fractional ownership in private jets has been growing for more than a decade and many companies (e.g. NetJets, Flexjet, Flight Options, CitationShares, FractionAir) have entered the field. Price competition is fierce. The difficulty in this business is to coordinate the demands of thousands of customers at short notice. Richard Santulli, NetJets’ founder and CEO wants to alert the readers of The Economist that his company has the best offer for them. Gates and Buffet may own their own jets (I don’t know), but showing them as NetJets customers surely sends a message. Buffet is known for his frugality and if he uses NetJets it must make sense from a cost perspective (he also owns the company). This is more attention-grabbing than presenting a table full of figures for instance.