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Advertising for Attention in a Consumer Search Model

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  • Marco A. Haan
  • José L. Moraga‐González

Abstract

We model the idea that when consumers search for products, they first visit the firm whose advertising is more salient. The gains a firm derives from being visited early increase in search costs, so equilibrium advertising increases as search costs rise. This may result in lower firm profits when search costs increase. We extend the basic model by allowing for firm heterogeneity in advertising costs. Firms whose advertising is more salient and therefore raise attention more easily charge lower prices in equilibrium and obtain higher profits. As advertising cost asymmetries increase, aggregate profits increase, advertising falls and welfare increases.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 121 (2011)
Issue (Month): 552 (05)
Pages: 552-579

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Handle: RePEc:ecj:econjl:v:121:y:2011:i:552:p:552-579

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References

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Citations

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Cited by:
  1. Jidong Zhou, 2009. "Ordered Search in Differentiated Markets," EERI Research Paper Series EERI_RP_2009_28, Economics and Econometrics Research Institute (EERI), Brussels.
  2. Nathan Larson, 2013. "Niche products, generic products, and consumer search," Economic Theory, Springer, vol. 52(2), pages 793-832, March.
  3. José L. Moraga-González & Vaiva Petrikaitė, 2013. "Search costs, demand-side economies, and the incentives to merge under Bertrand competition," RAND Journal of Economics, RAND Corporation, vol. 44(3), pages 391-424, 09.
  4. Maarten Janssen & Alexei Parakhonyak, 2014. "Consumer search markets with costly revisits," Economic Theory, Springer, vol. 55(2), pages 481-514, February.
  5. Astorne-Figari, Carmen & Yankelevich, Aleksandr, 2014. "Consumer search with asymmetric price sampling," Economics Letters, Elsevier, vol. 122(2), pages 331-333.
  6. Alexandre de Cornière, 2013. "Search Advertising," Economics Series Working Papers 649, University of Oxford, Department of Economics.
  7. Wilson, Chris M., 2010. "Ordered search and equilibrium obfuscation," International Journal of Industrial Organization, Elsevier, vol. 28(5), pages 496-506, September.
  8. Julio J. Rotemberg, 2012. "Prominent Job Advertisements, Group Learning and Wage Dispersion," NBER Working Papers 18638, National Bureau of Economic Research, Inc.
  9. Wilson, Chris M., 2012. "Market frictions: A unified model of search costs and switching costs," European Economic Review, Elsevier, vol. 56(6), pages 1070-1086.
  10. Chen, Yongmin & Zhang, Tianle, 2013. "Entry and Welfare in Search Markets," MPRA Paper 52241, University Library of Munich, Germany.
  11. Zhou, Jidong, 2011. "Multiproduct search," MPRA Paper 37139, University Library of Munich, Germany.
  12. Dmitry Lubensky, 2013. "A Model of Recommended Retail Prices," Working Papers 2013-14, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  13. Mark Armstrong & Jidong Zhou, 2011. "Paying for Prominence," Economic Journal, Royal Economic Society, vol. 121(556), pages F368-F395, November.

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