The advertising mix for a search good
AbstractWe extend the persuasion game to bring it squarely into the economics of advertising. We model advertising as exciting consumer interest into learning more about the product, and determine a firm's equilibrium choice of advertising content over quality information, price information, and horizontal match information. Equilibrium is unique whenever advertising is necessary. The outcome is a separating equilibrium with quality unravelling. Lower quality firms need to provide more information. For a given quality level, as a function of consumer visit costs, first quality information is disclosed, then price information and then horizontal product information are added to the advertising mix. Some suggestive evidence is provided from airline ads in newspapers.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8756.
Date of creation: Jan 2012
Date of revision:
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Other versions of this item:
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- M37 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Advertising
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-28 (All new papers)
- NEP-COM-2012-03-28 (Industrial Competition)
- NEP-CTA-2012-03-28 (Contract Theory & Applications)
- NEP-IND-2012-03-28 (Industrial Organization)
- NEP-MKT-2012-03-28 (Marketing)
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