Advertising and Coordination
AbstractWhen market information such as price is difficult to communicate, consumers and firms may be unable to take advantage of mutually beneficial scale economies so that coordination failures arise. Ostensibly uninformative advertising expenditures can be used to eliminate coordination failures by allowing an efficient firm to communicate implicitly that it offers a low price. This provides a theoretical explanation for L. Benham's (1972) empirical association of the ability to advertise with lower prices and larger scale. Advertising becomes necessary for optimal coordination when the identity of the efficient firm is uncertain. An application to loss-leader pricing is developed. Copyright 1994 by The Review of Economic Studies Limited.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of Economic Studies.
Volume (Year): 61 (1994)
Issue (Month): 1 (January)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0034-6527
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