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Upstream Pricing and Advertising Signal Downstream Demand

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  • Albaek, S.
  • Overgaard, P.

    (Tilburg University, Center for Economic Research)

Abstract

This paper considers price and advertising decisions by a monopolist manufacturer who is privately informed about the strength of consumer demand. Consumers respond to advertising and to the retail price chosen by an uninformed retailer on the basis of his beliefs about demand. This signaling game has a unique intuitive equilibrium outcome in which a high-demand manufacturer chooses his full-information pair of wholesale price and advertising. When demand is low, the wholesale price is distorted downward from its full information level, whereas demand-enhancing advertising may be distorted in either direction. Dissipative advertising is not distorted because it is never used. Copyright 1992 by MIT Press.

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1992-9.

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Date of creation: 1992
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Handle: RePEc:dgr:kubcen:19929

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Web page: http://center.uvt.nl

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Cited by:
  1. Albaek, Svend & Overgaard, Per Baltzer, 1998. "Receiver discretion in signalling models: Information transmission to competing retailers," International Journal of Industrial Organization, Elsevier, vol. 16(2), pages 209-228, March.

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