The Dynamics of Price and Advertising as Signals of Quality
AbstractA monopolist introduces a new product of either low or high quality. It advertises to make consumers aware of the product and signals product quality using both price and advertising. When consumption does not re- veal product quality, price is higher and advertising is lower than they would be if product quality is observable. Price rises and advertising falls as the fraction of aware consumers increases. When consumption reveals product quality, price is higher and advertising is lower than they would be if prod- uct quality is observable. Price declines as the fraction of aware consumers increases and advertising follows an inverted U shape. We ¯nd support for these empirical predictions from a data set on Direct-to-Consumer advertis- ing on pharmaceutical drugs.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Western Ontario, Economic Policy Research Institute in its series University of Western Ontario, Economic Policy Research Institute Working Papers with number 20074.
Date of creation: 2007
Date of revision:
Contact details of provider:
Postal: Economic Policy Research Institute, Social Science Centre, University of Western Ontario, London, Ontario, Canada N6A 5C2
Phone: 519-661-2111 Ext.85244
Web page: http://economics.uwo.ca/research/research_papers/epri_workingpapers.html
quality; signaling; pricing; advertising;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- M37 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Advertising
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-01-26 (All new papers)
- NEP-COM-2008-01-26 (Industrial Competition)
- NEP-MIC-2008-01-26 (Microeconomics)
- NEP-MKT-2008-01-26 (Marketing)
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.