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The many conditions under which monopolistic advertising can differ from the social optimum

Author

Listed:
  • Richard E. Just

    (University of Maryland)

  • Rulon D. Pope

    (Brigham Young University)

Abstract

This paper takes a new approach to a classical question about the relationship of monopolistic behavior to the social optimum when advertising is admitted. By characterizing conditions in terms of consumer preferences and using an uncommon approach to comparative static analysis, we derive a general result that produces a dozen special cases of interest. We also show that a plausible preference specification is general enough to generate each of these cases. The specification is amenable to estimation and inference with common data, although empirical application is beyond the scope of this paper. Results are derived assuming that advertising follows the complementary rather than persuasive advertising paradigm where consumers have stable quasilinear preferences and the amount of advertising is seller-determined rather than offered at a unit price to consumers.

Suggested Citation

  • Richard E. Just & Rulon D. Pope, 2017. "The many conditions under which monopolistic advertising can differ from the social optimum," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 41(3), pages 421-440, July.
    • Handle: RePEc:spr:jecfin:v:41:y:2017:i:3:d:10.1007_s12197-016-9360-z
    DOI: 10.1007/s12197-016-9360-z
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    References listed on IDEAS

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    More about this item

    Keywords

    Advertising; Monopoly; Social optimum;
    All these keywords.

    JEL classification:

    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D60 - Microeconomics - - Welfare Economics - - - General

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