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Caught in a stranglehold? Advertising: What else?

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  • Laurent Linnemer

    (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique)

Abstract

I analyze a quality signaling problem by a monopoly introducing a new experience good. A high-quality type aims to signal itself to consumers but can be imitated by a low-quality type with either a low or a high cost. In the unique separating equilibrium after deletion of dominated strategies, the high-quality type separates through a marketing mix of price and dissipative advertising. Advertising is used despite the absence of repeat purchases or informed consumers.

Suggested Citation

  • Laurent Linnemer, 2011. "Caught in a stranglehold? Advertising: What else?," Post-Print hal-00558160, HAL.
    • Handle: RePEc:hal:journl:hal-00558160
    DOI: 10.1111/j.1467-9957.2010.02182.x
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    References listed on IDEAS

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    1. Fluet, Claude & Garella, Paolo G., 2002. "Advertising and prices as signals of quality in a regime of price rivalry," International Journal of Industrial Organization, Elsevier, vol. 20(7), pages 907-930, September.
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    Cited by:

    1. Carla Guadalupi, 2018. "Learning quality through prices and word‐of‐mouth communication," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 27(1), pages 53-70, March.

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    Keywords

    Advertising; Quality; Signaling;
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