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Strategic Targeted Advertising

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Author Info

  • Andrea Galeotti

    ()
    (Econometric Institute, Erasmus University Rotterdam)

  • Jose Luis Moraga

    ()
    (Groningen University)

Abstract

We present a strategic game of pricing and targeted-advertising. Firms cansimultaneously target priceadvertisements to different groups of customers, or to the entiremarket. Pure strategy equilibria do not exist and thus marketsegmentation cannot occur surely. Equilibria exhibit random advertising--to induce an unequal distribution of information in the market-- andrandom pricing --to obtain profits from badly informed buyers--. Wecharacterize a positive profits equilibrium where firms advertise lowprices to a segment of consumers, high prices to a distinct segment ofconsumers, and intermediate prices to the entire market. As a resultthe market is segmented only from time to time and presentssubstantial price dispersion across segments.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 03-035/1.

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Date of creation: 11 May 2003
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Handle: RePEc:dgr:uvatin:20030035

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Web page: http://www.tinbergen.nl

Related research

Keywords: Targeted advertising; oligopoly; price dispersion; segmented markets.;

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Cited by:
  1. Galeotti, Andrea & Moraga-González, José Luis, 2008. "Segmentation, advertising and prices," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1106-1119, September.
  2. repec:ebl:ecbull:v:12:y:2007:i:10:p:1-12 is not listed on IDEAS

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