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Advertising for Attention in a Consumer Search Model

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  • Marco A. Haan

    (University of Groningen)

  • Jose Luis Moraga-Gonzalez

    (University of Groningen)

Abstract

We model the idea that when consumers search for products, they first visit the firm whose advertising is more salient. The gains a firm derives from being visited early increase in search costs, so equilibrium advertising increases as search costs rise. This may result in lower firm profits when search costs increase. We extend the basic model by allowing for firm heterogeneity in advertising costs. Firms whose advertising is more salient and therefore raise attention more easily charge lower prices in equilibrium and obtain higher profits. As advertising cost asymmetries increase, aggregate profits increase, advertising falls and welfare increases.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 09-031/1.

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Date of creation: 16 Apr 2009
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Handle: RePEc:dgr:uvatin:20090031

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

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Keywords: Advertising; attention; consumer search; saliency;

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Citations

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Cited by:
  1. Jidong Zhou, 2009. "Ordered Search in Differentiated Markets," EERI Research Paper Series EERI_RP_2009_28, Economics and Econometrics Research Institute (EERI), Brussels.
  2. Chris M. Wilson, 2008. "Ordered Search and Equilibrium Obfuscation," Economics Series Working Papers 401, University of Oxford, Department of Economics.
  3. Mark Armstrong & Jidong Zhou, 2011. "Paying for Prominence," Economic Journal, Royal Economic Society, vol. 121(556), pages F368-F395, November.
  4. Jose L. Moraga-Gonzalez & Vaiva Petrikaite, 2012. "Search Costs, Demand-Side Economies and the Incentives to merge under Bertrand Competition," Tinbergen Institute Discussion Papers 12-017/1, Tinbergen Institute.
  5. Zhou, Jidong, 2011. "Multiproduct search," MPRA Paper 37139, University Library of Munich, Germany.
  6. Nathan Larson, 2013. "Niche products, generic products, and consumer search," Economic Theory, Springer, vol. 52(2), pages 793-832, March.
  7. Wilson, Chris M., 2012. "Market frictions: A unified model of search costs and switching costs," European Economic Review, Elsevier, vol. 56(6), pages 1070-1086.
  8. Alexandre de Cornière, 2013. "Search Advertising," Economics Series Working Papers 649, University of Oxford, Department of Economics.
  9. Astorne-Figari, Carmen & Yankelevich, Aleksandr, 2014. "Consumer search with asymmetric price sampling," Economics Letters, Elsevier, vol. 122(2), pages 331-333.
  10. Chen, Yongmin & Zhang, Tianle, 2013. "Entry and Welfare in Search Markets," MPRA Paper 52241, University Library of Munich, Germany.
  11. Dmitry Lubensky, 2013. "A Model of Recommended Retail Prices," Working Papers 2013-14, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.

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