Advertising, brand loyalty and pricing
AbstractI consider an oligopoly model where, prior to price competition, firms invest in persuasive advertising and induce brand loyalty in consumers who would otherwise buy the cheapest alternative on the market. This setting, in which persuasive advertising is introduced to homogeneous product markets, provides an alternative explanation for price dispersion phenomena. Despite ex ante symmetry, the equilibrium profile of advertising outlays is asymmetric. It follows that endogenously determined brand loyal consumer bases are not symmetric across firms. This raises a robustness question regarding Varian's "model of sales" where symmetry is exogenously assumed.
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Bibliographic InfoArticle provided by Elsevier in its journal Games and Economic Behavior.
Volume (Year): 64 (2008)
Issue (Month): 1 (September)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/622836
Oligopoly Advertising Price dispersion Brand loyalty;
Other versions of this item:
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- M37 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Advertising
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