This paper considers pricing, cost-reducing investment and dissipative advertising by firms when consumers acquire price information via two information channels, observation of advertising and sequential price search. We find that advertising guides consumers to the lowest prices in the market, even when consumers have the option to search. The threat of search by advertising-uninformed consumers introduces price competition among firms, giving short-and long-run resolutions to the Diamond paradox. Higher concentration raises welfare as a consequence of coordination economies. An extension to loss-leader advertising is developed.
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
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number
1148.
Length: Date of creation: Oct 1995 Date of revision: Handle: RePEc:nwu:cmsems:1148
Contact details of provider: Postal: Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014 Phone: 847/491-3527 Fax: 847/491-2530 Email: Web page: http://www.kellogg.northwestern.edu/research/math/ More information through EDIRC
Order Information: Email:
For technical questions regarding this item, or to correct its listing, contact: (Fran Walker).
Related research
Keywords:
Other versions of this item:
Paper
Kyle Bagwell & Garey Ramey, 1992.
"Coordination Economies,"
Discussion Papers
1034, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
[Downloadable!]
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.:
Kyle Bagwell & Garey Ramey, 1990.
"Advertising and Coordination,"
Discussion Papers
903, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
[Downloadable!]
Other versions:
Cited by: (explanations, 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.)
Jeffrey R. Campbell & Hugo Hopenhayn, 2003.
"Market size matters,"
Working Paper Series
WP-03-12, Federal Reserve Bank of Chicago.
[Downloadable!]
Other versions:
Jeffrey R. Campbell & Hugo A. Hopenhayn, 2002.
"Market Size Matters,"
NBER Working Papers
9113, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)