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Persuading Consumers with Social Attitudes

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  • Stefan Buehler
  • Daniel Halbheer

Abstract

This paper analyzes persuasive advertising and pricing in oligopoly if firms sell differentiated products and consumers have heterogeneous social attitudes towards the consumption by others. Deriving product demand from primitives, we show that the demand-enhancing effect of persuasive advertising varies across consumers and increases in the average degree of conformity. In equilibrium, both quality and cost leaders choose higher advertising intensities and charge higher prices than their competitors. In addition, we show that an increase in the average degree of conformity among consumers reinforces asymmetries between firms.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2011/wp-cesifo-2011-05/cesifo1_wp3470.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3470.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3470

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Keywords: advertising; social attitude; consumption externality; quality;

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References

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  18. GRILO, Isabel & SHY, Oz & THISSE, Jacques-François, 1997. "Price competition when consumer behavior is characterized by conformity or vanity," CORE Discussion Papers 1997032, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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Cited by:
  1. Nick Vikander, 2014. "Sellouts, Beliefs, and Bandwagon Behavior," Discussion Papers 14-15, University of Copenhagen. Department of Economics.

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