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Going Where the Ad Leads You: On High Advertised Prices and Searching Where to Buy

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  • Maarten C. W. Janssen

    (Department of Economics, University of Vienna, 1010 Vienna, Austria, and Department of Economics, Erasmus University Rotterdam, 3000 DR Rotterdam, The Netherlands)

  • Marielle C. Non

    (Tinbergen Institute, Erasmus University Rotterdam, 3062 PA Rotterdam, The Netherlands, and University of Groningen, 9700 AV Groningen, The Netherlands)

Abstract

An important role of informative advertising is to inform consumers of the simple fact that the shop that advertises sells a particular product. This information may help consumers to save on their search activities: instead of wandering around, a consumer can simply visit the shop that has advertised, knowing that there he can find the commodity he is looking for. The implications of this simple fact have not been studied before. Using game theoretic reasoning in a model that combines consumer search and firms' advertising we show that firms may find it optimal to advertise prices that are higher than nonadvertised prices. The important mechanism underlying this result is that advertising lowers the expected search cost for consumers. Through this analysis we provide a new insight into the role of informative advertising.

Suggested Citation

  • Maarten C. W. Janssen & Marielle C. Non, 2009. "Going Where the Ad Leads You: On High Advertised Prices and Searching Where to Buy," Marketing Science, INFORMS, vol. 28(1), pages 87-98, 01-02.
    • Handle: RePEc:inm:ormksc:v:28:y:2009:i:1:p:87-98
    DOI: 10.1287/mksc.1080.0377
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    References listed on IDEAS

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    2. Atayev, Atabek, 2022. "Uncertain product availability in search markets," Journal of Economic Theory, Elsevier, vol. 204(C).
    3. Atabek Atayev, 2021. "Uncertain Product Availability in Search Markets," Papers 2109.15211, arXiv.org.
    4. Xingyue Zhang & Yuliang Yao, 2020. "How Much is Too Much? The Effect of Offline Call Intensity on Online Purchase of Digital Services," Production and Operations Management, Production and Operations Management Society, vol. 29(3), pages 509-525, March.
    5. Yang, Yupin & Lu, Qiang (Steven) & Tang, Guanting & Pei, Jian, 2015. "The Impact of Market Competition on Search Advertising," Journal of Interactive Marketing, Elsevier, vol. 30(C), pages 46-55.
    6. Roberto Burguet & Vaiva Petrikaite, 2017. "Targeted Advertising and Costly Consumer Search," Working Papers 971, Barcelona School of Economics.
    7. Wang, Chengsi, 2011. "Informative Advertising, Consumer Search and Transparency Policy," MPRA Paper 34977, University Library of Munich, Germany.
    8. Dmitri Kuksov & Ashutosh Prasad & Mohammad Zia, 2017. "In-Store Advertising by Competitors," Marketing Science, INFORMS, vol. 36(3), pages 402-425, May.
    9. Atayev, Atabek, 2021. "Uncertain product availability in search markets," ZEW Discussion Papers 21-089, ZEW - Leibniz Centre for European Economic Research.
    10. Jeffrey D. Shulman & Xianjun Geng, 2013. "Add-on Pricing by Asymmetric Firms," Management Science, INFORMS, vol. 59(4), pages 899-917, April.
    11. Obradovits, Martin, 2015. "Going to the Discounter: Consumer Search with Local Market Heterogeneities," MPRA Paper 66613, University Library of Munich, Germany.
    12. Bikram P. Ghosh & Michael R. Galbreth, 2023. "Effect of search cost in the presence of search deterring informative advertising," Quantitative Marketing and Economics (QME), Springer, vol. 21(3), pages 357-379, September.
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    15. Ganesh Iyer & Dmitri Kuksov, 2012. "Competition in Consumer Shopping Experience," Marketing Science, INFORMS, vol. 31(6), pages 913-933, November.

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