Michael A. Arnold () (Department of Economics,University of Delaware) Chenguang Li (Indiana University) Christine Saliba (University of Delaware) Lan Zhang (Indiana University)
Abstract
We analyze the impact of market share on advertising and pricing decisions by firms that sell to loyal, non-shopping customers and can advertise to shoppers through an information intermediary or "gatekeeper." In equilibrium the firm with the smaller loyal market advertises more aggressively but prices less competitively than the firm with the larger loyal market, and there is no equilibrium in which both firms advertise with probability 1. The results differ significantly from earlier literature which assumes all prices are revealed to shoppers and finds that the firm with the smaller loyal market adopts a more competitive pricing strategy. The predictions of the model are consistent with advertising and pricing behavior observed on price comparison websites such as Shopper.com.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by University of Delaware, Department of Economics in its series Working Papers with number
08-14.
Length: 28 pages Date of creation: 2008 Date of revision: Publication status: Forthcoming in Journal of Industrial Economics. Handle: RePEc:dlw:wpaper:08-14.
Find related papers by JEL classification: D4 - Microeconomics - - Market Structure and Pricing D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information L19 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Other L89 - Industrial Organization - - Industry Studies: Services - - - Other
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Varian, Hal R, 1980.
"A Model of Sales,"
American Economic Review,
American Economic Association, vol. 70(4), pages 651-59, September.
[Downloadable!] (restricted)
Michael R. Baye & John Morgan & Patrick Scholten, 2006.
"Information, Search, and Price Dispersion,"
Working Papers
2006-11, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
[Downloadable!]