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 School of Economics, The University of New South Wales in its series Discussion Papers with number 2010-20.
Length: 22 pages
Date of creation: Nov 2010
Date of revision:
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Other versions of this item:
- Gomis-Porqueras, Pedro & Julien, Benoit & Wang, Chengsi, 2010. "Pricing, Advertising, and Market Structure with Frictions," MPRA Paper 25942, University Library of Munich, Germany.
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-26 (All new papers)
- NEP-COM-2011-02-26 (Industrial Competition)
- NEP-DGE-2011-02-26 (Dynamic General Equilibrium)
- NEP-MAC-2011-02-26 (Macroeconomics)
- NEP-MKT-2011-02-26 (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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