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Persuading Consumers With Social Attitudes

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  • Bühler, Stefan

    ()

  • Halbheer, Daniel

    ()

Abstract

This paper analyzes persuasive advertising and pricing in oligopoly if firms sell differentiated products and consumers have heterogenous social attitudes towards the consumption by others. Deriving product demand from primitives, we show that the demand-enhancing effect of persuasive advertising varies across consumers and increases in the average degree of conformity. In equilibrium, both quality and cost leaders choose higher advertising intensities and charge higher prices than their competitors. In addition, we show that an increase in the average degree of conformity among consumers reinforces asymmetries between firms.

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File URL: http://www1.vwa.unisg.ch/RePEc/usg/econwp/EWP-1117.pdf
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Bibliographic Info

Paper provided by University of St. Gallen, School of Economics and Political Science in its series Economics Working Paper Series with number 1117.

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Length: 24 pages
Date of creation: Apr 2011
Date of revision:
Handle: RePEc:usg:econwp:2011:17

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Keywords: Advertising; social attitude; consumption externality; quality;

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References

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  1. GRILO, Isabel & SHY, Oz & THISSE, Jacques-François, 1997. "Price competition when consumer behavior is characterized by conformity or vanity," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 1997032, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  19. Karni, Edi & Schmeidler, David, 1990. "Fixed Preferences and Changing Tastes," American Economic Review, American Economic Association, American Economic Association, vol. 80(2), pages 262-67, May.
  20. Jean-Jacques Laffont & Patrick Rey & Jean Tirole, 1998. "Network Competition: I. Overview and Nondiscriminatory Pricing," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 1-37, Spring.
  21. Nitin Mehta & Xinlei (Jack) Chen & Om Narasimhan, 2008. "Informing, Transforming, and Persuading: Disentangling the Multiple Effects of Advertising on Brand Choice Decisions," Marketing Science, INFORMS, INFORMS, vol. 27(3), pages 334-355, 05-06.
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Cited by:
  1. Nick Vikander, 2014. "Sellouts, Beliefs, and Bandwagon Behavior," Discussion Papers 14-15, University of Copenhagen. Department of Economics.

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