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Strategic Informative Advertising in a Horizontally Differentiated Duopoly

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  • Levent Çelik

Abstract

When firms possess information about their competitors’ products, their advertisements may leak extra information. I analyze this within a duopoly television market that lasts for two periods. Each station may advertise its upcoming program by airing a tune-in during the first program. Viewers may alternatively sample a program. I find that each station’s equilibrium tune-in decision depends on both upcoming programs - thereby revealing more information than the actual content - when the sampling cost is sufficiently low. Otherwise, tune-in decisions are made independently. It is welfare improving to ban tune-ins in the latter case but not in the former.

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Bibliographic Info

Paper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp359.

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Date of creation: Sep 2008
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Handle: RePEc:cer:papers:wp359

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Keywords: Informative advertising; Tune-ins; Sampling; Information disclosure; Signaling.;

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  1. Philippe Bontems & Valérie Meunier, 2005. "Advertising and Price Signaling of Quality in a Duopoly with Endogenous Locations," CIE Discussion Papers, University of Copenhagen. Department of Economics. Centre for Industrial Economics 2005-10, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  2. Ron Shachar & Bharat N. Anand, 1998. "The Effectiveness and Targeting of Television Advertising," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 7(3), pages 363-396, 09.
  3. Bharat Anand & Ron Shachar, 2009. "Targeted advertising as a signal," Quantitative Marketing and Economics, Springer, Springer, vol. 7(3), pages 237-266, September.
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  7. Fluet, Claude & Garella, Paolo G., 2002. "Advertising and prices as signals of quality in a regime of price rivalry," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 20(7), pages 907-930, September.
  8. Mark N. Hertzendorf & Per Baltzer Overgaard, 2001. "Price Competition and Advertising Signals: Signaling by Competing Senders," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 10(4), pages 621-662, December.
  9. de Bijl, Paul W. J., 1997. "Entry deterrence and signaling in markets for search goods," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 16(1), pages 1-19, November.
  10. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262200716, December.
  11. Kyle Bagwell & Garey Ramey, 1990. "Advertising and Coordination," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 903, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  12. Grossman, Gene M & Shapiro, Carl, 1984. "Informative Advertising with Differentiated Products," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 51(1), pages 63-81, January.
  13. Mark N. Herzendorf & Per Baltzer Overgaard, 2001. "Prices as Signals of Quality in Duopoly," CIE Discussion Papers, University of Copenhagen. Department of Economics. Centre for Industrial Economics 2001-01, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  14. Bharat N. Anand & Ron Shachar, 2011. "Advertising, the matchmaker," RAND Journal of Economics, RAND Corporation, RAND Corporation, vol. 42(2), pages 205-245, 06.
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