Advertising and prices as signals of quality in a regime of price rivalry
AbstractCet article rÃ©examine le dÃ©bat sur l'utilisation du prix et de la publicite comme signaux de qualitÃ©, et sur les effets concurrentiels de la publicitÃ©. Nous montrons que la publicitÃ© a un rÃ´le de signal lorsqu'il y a rivalitÃ© en prix entre les entreprises, contrairement Ã ce que l'on obtient quand une entreprise est en situation de monopole. Plus prÃ©cisement, dans une structure de marchÃ© oligopolistique, les prix sont des signaux adÃ©quats de qualitÃ© lorsque les diffÃ©rences de qualitÃ© entre entreprises sont suffisamment grandes; si ces derniÃ¨res sont faibles, les signaux sont des combinaisons prix-publicitÃ©. Du point de vue du bien-Ãªtre, la publicitÃ© permet des prix plus bas, Ã la fois pour la qualitÃ© Ã©levÃ©e et la qualitÃ© faible. Enfin, nous analysons aussi la publicitÃ© comme coÃ»t variable dissipatif, plutÃ´t qu'uniquement comme coÃ»t fixe. This paper reexamines the debate as to whether firms use price or advertising to signal quality and whether advertising has pro- or anti-competitive effects. We show that the signaling theory strongly predicts that advertising signals quality if price rivalry prevails, in contrast to single-firm models. Under price rivalry, price signaling prevails for sufficient inter-brand quality differences; combined price-advertising signals must be used when this difference shrinks. From a welfare point of view, advertising leads to lower prices for both the high and low qualities. Finally, we analyze advertising signals in the form of variable rather than fixed dissipative costs.
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Bibliographic InfoArticle provided by Elsevier in its journal International Journal of Industrial Organization.
Volume (Year): 20 (2002)
Issue (Month): 7 (September)
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Web page: http://www.elsevier.com/locate/inca/505551
Other versions of this item:
- Claude Fluet & Paolo G. Garella, 1999. "Advertising and Prices as Signals of Quality in a Regime of Price Rivalry," Cahiers de recherche du DÃ©partement des sciences Ã©conomiques, UQAM 9903, Université du Québec à Montréal, Département des sciences économiques.
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
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