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Informative Advertising in Directed Search

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  • Pedro Gomis-Porqueras

    () (Department of Economics, Monash University)

  • Benoit Julien

    () (School of Economics, University of New South Wales)

  • Chengsi Wang

    () (School of Economics, University of New South Wales)

Abstract

We consider a directed search environment where capacity constrained sellers reach uncoordinated buyers through costly advertising while buyers observed all prices probabilistically. We show that: (i) the equilibrium advertising intensity has an inverted U-shape in market tightness, (ii) the equilibrium advertising intensity is higher under an auction mechanism than under posted pricing, and (iii) the equilibrium price and measure of informed buyers may be positively correlated even in large markets.

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File URL: http://research.economics.unsw.edu.au/RePEc/papers/2012-26.pdf
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Bibliographic Info

Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2012-26.

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Length: 40 pages
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:swe:wpaper:2012-26

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Keywords: costly advertising; directed search; imperfect observability; sales mechanism.;

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  1. Peters, Michael & Severinov, Sergei, 1997. "Competition among Sellers Who Offer Auctions Instead of Prices," Journal of Economic Theory, Elsevier, vol. 75(1), pages 141-179, July.
  2. Michael Peters, 1998. "Limits of Exact Equilibria for Capacity Constrained Sellers with costlySearch," Working Papers peters-98-01, University of Toronto, Department of Economics.
  3. Galenianos, Manolis & Kircher, Philipp, 2012. "On the game-theoretic foundations of competitive search equilibrium," Open Access publications from London School of Economics and Political Science http://eprints.lse.ac.uk/, London School of Economics and Political Science.
  4. Manolis Galenianos & Philipp Kircher, 2005. "Directed Search with Multiple Job Applications," PIER Working Paper Archive 05-022, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  5. Benoit Julien & John Kennes & Ian Paul King, 2001. "Auctions and Posted Prices in Directed Search Equilibrium," The B.E. Journal of Macroeconomics, De Gruyter, vol. 0(1), pages 1.
  6. Peters, Michael, 1984. "Bertrand Equilibrium with Capacity Constraints and Restricted Mobility," Econometrica, Econometric Society, vol. 52(5), pages 1117-27, September.
  7. Guido Menzio, 2007. "A Theory of Partially Directed Search," Journal of Political Economy, University of Chicago Press, vol. 115(5), pages 748-769, October.
  8. James Albrecht & Pieter A. Gautier & Susan Vroman, 2006. "Equilibrium Directed Search with Multiple Applications," Review of Economic Studies, Wiley Blackwell, vol. 73(4), pages 869-891, October.
  9. Lester, Benjamin, 2010. "Directed search with multi-vacancy firms," Journal of Economic Theory, Elsevier, vol. 145(6), pages 2108-2132, November.
  10. Anderson, Simon P & Renault, Regis, 2000. "Consumer Information and Firm Pricing: Negative Externalities from Improved Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(3), pages 721-42, August.
  11. Benjamin Lester, 2011. "Information and Prices with Capacity Constraints," American Economic Review, American Economic Association, vol. 101(4), pages 1591-1600, June.
  12. Leo Kaas, 2010. "Variable Search Intensity with Coordination Unemployment," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 31.
  13. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
  14. Benoit Julien & John Kennes & Ian King, 2000. "Bidding for Labor," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 619-649, October.
  15. Julien, BenoI^t & Kennes, John & King, Ian, 2008. "Bidding for money," Journal of Economic Theory, Elsevier, vol. 142(1), pages 196-217, September.
  16. B. Curtis Eaton & Ian A. MacDonald & Laura Meriluoto, 2010. "Existence Advertising, Price Competition and Asymmetric Market Structure," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 39.
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