Upstream Pricing and Advertising Signal Downstream Demand
AbstractThis paper considers price and advertising decisions by a monopolist manufacturer who is privately informed about the strength of consumer demand. Consumers respond to advertising and to the retail price chosen by an uninformed retailer on the basis of his beliefs about demand. This signaling game has a unique intuitive equilibrium outcome in which a high-demand manufacturer chooses his full-information pair of wholesale price and advertising. When demand is low, the wholesale price is distorted downward from its full information level, whereas demand-enhancing advertising may be distorted in either direction. Dissipative advertising is not distorted because it is never used. Copyright 1992 by MIT Press.
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Bibliographic InfoPaper provided by Tilburg - Center for Economic Research in its series Papers with number 9209.
Length: 17 pages
Date of creation: 1992
Date of revision:
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consumers ; information ; manufacturing industries ; game theory;
Other versions of this item:
- Albaek, Svend & Overgaard, Per Baltzer, 1992. "Upstream Pricing and Advertising Signal Downstream Demand," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(4), pages 677-98, Winter.
- Albaek, S. & Overgaard, P., 1992. "Upstream Pricing and Advertising Signal Downstream Demand," Discussion Paper 1992-9, Tilburg University, Center for Economic Research.
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- Albaek, Svend & Overgaard, Per Baltzer, 1998. "Receiver discretion in signalling models: Information transmission to competing retailers," International Journal of Industrial Organization, Elsevier, vol. 16(2), pages 209-228, March.
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