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Going where the Ad leads you: On High Advertised Prices and Search where to buy

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Author Info

  • Maarten C.W. Janssen

    ()
    (Faculty of Economics, Erasmus Universiteit Rotterdam)

  • Marielle C. Non

    ()
    (Faculty of Economics, Erasmus Universiteit Rotterdam)

Abstract

The search literature assumes that consumers know which firms sell products they are looking for, but are unaware of the particular variety and the prices at which each firm sells. In this paper, we consider the situation where consumers are uncertain whether a firm carries the product at all by proposing a model where in the first stage firms decide on whether or not to carry the product. Firms may advertise, informing consumers not only of the price they charge, but also of the basic fact that they sell the product. In this way, advertising lowers the expected search cost. We show that this role of advertising can lead to a situation where advertised prices are higher than non—advertised prices in equilibrium.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 06-075/1.

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Date of creation: 25 Aug 2006
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Handle: RePEc:dgr:uvatin:20060075

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Keywords: consumer search; informative advertising;

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  1. Meurer, Michael & Stahl, Dale II, 1994. "Informative advertising and product match," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 12(1), pages 1-19, March.
  2. Janssen, Maarten C.W. & Non, Marielle C., 2008. "Advertising and consumer search in a duopoly model," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 26(1), pages 354-371, January.
  3. Maarten C.W. Janssen & Mariëlle C. Non, 2005. "Advertising and Consumer Search in a Duopoly Model," Tinbergen Institute Discussion Papers, Tinbergen Institute 05-022/1, Tinbergen Institute.
  4. Ackerberg, Daniel A, 2001. "Empirically Distinguishing Informative and Prestige Effects of Advertising," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 316-33, Summer.
  5. Butters, Gerard R, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 44(3), pages 465-91, October.
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Cited by:
  1. Wang, Chengsi, 2011. "Informative Advertising, Consumer Search and Transparency Policy," MPRA Paper 34977, University Library of Munich, Germany.

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