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Non-comparative versus Comparative Advertising of Quality

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  • Winand Emons
  • Claude Fluet

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Abstract

Two firms produce a good with a horizontal and a vertical characteristic called quality. The difference in the unobservable quality levels determines how the firms share the market. We consider two scenarios: In the first one, firms disclose quality; in the second one, they send costly signals thereof. Under non-comparative advertising a firm advertises its own quality, under comparative advertising a firm advertises the quality differential. In either scenario, under comparative advertising the firms never advertise together which they may do under non-comparative advertising. Moreover, under comparative advertising firms do not advertise when the informational value to consumers is small.

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Bibliographic Info

Paper provided by CIRANO in its series CIRANO Working Papers with number 2011s-75.

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Date of creation: 01 Dec 2011
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Handle: RePEc:cir:cirwor:2011s-75

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Keywords: quality; advertising; disclosure; signalling;

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References

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  1. Paul R. Milgrom & John Roberts, 1984. "Price and Advertising Signals of Product Quality," Cowles Foundation Discussion Papers 709, Cowles Foundation for Research in Economics, Yale University.
  2. Francesca BARIGOZZI & Paolo Giorgio GARELLA & Martin PEITZ, 2008. "With a little help from my enemy: comparative advertising as a signal of quality," Departmental Working Papers 2008-31, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  3. Simon P. Anderson & Régis Renault, 2009. "Comparative advertising: disclosing horizontal match information," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 558-581.
  4. Anderson, Simon & Ciliberto, Federico & Liaukonyte, Jura, 2010. "Getting into Your Head(Ache): The Information Content of Advertising in the Over-the-Counter Analgesics Industry," MPRA Paper 24916, University Library of Munich, Germany.
  5. Bagwell, Kyle, 2007. "The Economic Analysis of Advertising," Handbook of Industrial Organization, Elsevier.
  6. Christian Schultz, 1997. "Limit Pricing when Incumbents have Conflicting Interests," CIE Discussion Papers 1997-17, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  7. Navin Kartik, 2009. "Strategic Communication with Lying Costs," Review of Economic Studies, Oxford University Press, vol. 76(4), pages 1359-1395.
  8. Emons, Winand & Fluet, Claude, 2007. "Accuracy versus Falsification Costs: The Optimal Amount of Evidence under Different Procedures," CEPR Discussion Papers 6150, C.E.P.R. Discussion Papers.
  9. F. Barigozzi & M. Peitz, 2004. "Comparative Advertising and Competition Policy," Working Papers 524, Dipartimento Scienze Economiche, Universita' di Bologna.
  10. Andrew F. Daughety & Jennifer F. Reinganum, 2008. "Communicating quality: a unified model of disclosure and signalling," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 973-989.
  11. 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, vol. 20(7), pages 907-930, September.
  12. Kim Jeong-Yoo, 2003. "Signal Jamming in Games with Multiple Senders," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 3(1), pages 1-20, November.
  13. Mailath, George J, 1987. "Incentive Compatibility in Signaling Games with a Continuum of Types," Econometrica, Econometric Society, vol. 55(6), pages 1349-65, November.
  14. Daughety, Andrew F. & Reinganum, Jennifer F., 2007. "Competition and confidentiality: Signaling quality in a duopoly when there is universal private information," Games and Economic Behavior, Elsevier, vol. 58(1), pages 94-120, January.
  15. Mark N. Hertzendorf & Per Baltzer Overgaard, 2001. "Price Competition and Advertising Signals: Signaling by Competing Senders," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(4), pages 621-662, December.
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Cited by:
  1. Rohan Dutta & Sean Horan, 2013. "Inferring Rationales from Choice : Identification for Rational Shortlist Methods," Cahiers de recherche 09-2013, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  2. Archishman Chakraborty & Rick Harbaugh, 2012. "Persuasive Puffery," Working Papers 2012-05, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.

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