Pricing, Advertising, and Market Structure with Frictions
AbstractThis paper develops a model of pricing and advertising in a matching environment with capacity constrained sellers and uncoordinated buyers. Sellers' search intensity attracts buyers only probabilistically through costly informative advertisement. Equilibrium prices and proﬁt maximizing advertising levels are derived and their properties analyzed. The model generates an inverted U-shape relationship between individual advertisement and market tightness which is robust to alternative advertising technologies. The well known empirical fact in the IO literature reﬂects the trade-off between price and market tightness-matching effects. Finally, in this environment we can alleviate the discontinuity problem, allowing for unique symmetric equilibrium price to be derived.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 25942.
Date of creation: 16 Oct 2010
Date of revision:
Directed searching; Advertising; Pricing; Market structure;
Other versions of this item:
- Pedro Gomis-Porqueras & Benoit Julien & Chengsi Wang, 2010. "Pricing, Advertising, and Market Structure with Frictions," Discussion Papers 2010-20, School of Economics, The University of New South Wales.
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- M37 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Advertising
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-30 (All new papers)
- NEP-COM-2010-10-30 (Industrial Competition)
- NEP-DGE-2010-10-30 (Dynamic General Equilibrium)
- NEP-IND-2010-10-30 (Industrial Organization)
- NEP-MIC-2010-10-30 (Microeconomics)
- NEP-MKT-2010-10-30 (Marketing)
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.:
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