AbstractWe introduce a model of the retail firm in which consumers and active firms benefit collectively from coordination of sales at fewer firms. Using this model, we show that ostensibly uninformative advertising plays a key role in bringing about coordination economies, by directing consumer search toward firms taht offer the best deals. Optimal consumer scarch takes the form of a simple rule of thumb that uses observed advertising information to guide search. Both industry concentration and social surplus are higher in the presence of advertising, relative to a no-advertising benchmark.
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Bibliographic InfoPaper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1034.
Date of creation: Jan 1992
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