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Dynamic informative advertising of new experience goods:

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Author Info

  • Saak, Alexander E.

Abstract

This paper analyzes the optimal advertising and price policies of a monopolist who sells a new experience good over time to a population of heterogeneous forward-looking buyers. We consider informative advertising that can complement or substitute for learning-by-purchasing, and show that the advertising intensity always peaks during the early stages when the price extracts surplus from the buyers who are yet to learn their valuation for the good. We also show that even though informative advertising may temporarily raise prices and slow down the learning process, an advertising ban can reduce welfare.

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Bibliographic Info

Paper provided by International Food Policy Research Institute (IFPRI) in its series IFPRI discussion papers with number 1062.

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Date of creation: 2011
Date of revision:
Handle: RePEc:fpr:ifprid:1062

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Related research

Keywords: Advertising; experience goods; Learning; monopoly; private information;

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References

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  1. Grossman, Gene M & Shapiro, Carl, 1984. "Informative Advertising with Differentiated Products," Review of Economic Studies, Wiley Blackwell, vol. 51(1), pages 63-81, January.
  2. Simon P. Anderson & Régis Renault, 2002. "Advertising Content," Virginia Economics Online Papers 362, University of Virginia, Department of Economics.
  3. Simon P. Anderson & Régis Renault, 2006. "comparative Advertising," THEMA Working Papers 2006-18, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  4. Nelson, Philip, 1974. "Advertising as Information," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 729-54, July/Aug..
  5. Amir Heiman & Bruce McWilliams & Zhihua Shen & David Zilberman, 2001. "Learning and Forgetting: Modeling Optimal Product Sampling Over Time," Management Science, INFORMS, vol. 47(4), pages 532-546, April.
  6. Tülin Erdem & Michael P. Keane, 1996. "Decision-Making Under Uncertainty: Capturing Dynamic Brand Choice Processes in Turbulent Consumer Goods Markets," Marketing Science, INFORMS, vol. 15(1), pages 1-20.
  7. David P. Myatt & Justin P. Johnson, 2004. "On the Simple Economics of Advertising, Marketing, and Product Design," Economics Series Working Papers 185, University of Oxford, Department of Economics.
  8. Anderson, Simon P & Ciliberto, Federico & Liaukonyte, Jura & Renault, Régis, 2012. "Push-Me Pull-You: Comparative Advertising in the OTC Analgesics Industry," CEPR Discussion Papers 8988, C.E.P.R. Discussion Papers.
  9. Alexander E. Saak, 2008. "THE VALUE OF PRIVATE INFORMATION IN MONOPOLY -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 56(1), pages 169-189, 03.
  10. Lewis, Tracy R & Sappington, David E M, 1994. "Supplying Information to Facilitate Price Discrimination," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 309-27, May.
  11. Dirk Bergemann & Juuso Välimäki, 2006. "Dynamic Pricing of New Experience Goods," Journal of Political Economy, University of Chicago Press, vol. 114(4), pages 713-743, August.
  12. Kapil Bawa & Robert Shoemaker, 2004. "The Effects of Free Sample Promotions on Incremental Brand Sales," Marketing Science, INFORMS, vol. 23(3), pages 345-363, November.
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Cited by:
  1. Ayca Kaya, 2013. "Dynamics of price and advertising as quality signals: anything goes," Economics Bulletin, AccessEcon, vol. 33(2), pages 1556-1564.

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