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``We sold a million copies''-The role of advertising past sales

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Author Info
P. K. Monteiro (IMPA & Copenhagen University)
J. L. Moraga (Copenhagen University)

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Abstract

We model a two periods market with two-sided quality uncertainty. In the first period the seller gathers information about consumers' tastes upon observing his sales. In the second period the seller may or may not deliver the information. If the monopolist must commit either to reveal or conceal past-sales before observing them, commiting to reveal is the dominant strategy whenever advertising cost is low, buyers are many and their private information is accurate. When the seller can postpone the advertising decision and gains experience, past-sales revelation occurs partially. In equilibrium, delivery of sales-data occurs to induce some buyers' herding behaviour. We carry out the analysis for two different informational scenarios.

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Publisher Info
Paper provided by EconWPA in its series Industrial Organization with number 9812001.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 20 pages
Date of creation: 08 Dec 1998
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Handle: RePEc:wpa:wuwpio:9812001

Note: Type of Document - Postscript file; prepared on IBM PC - PC- TEX/Latex; to print on HP/PostScript/; pages: 20 ; figures: request from author/
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Related research
Keywords: two-sided quality uncertainty; past-sales advertising; herding behaviour;

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Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
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

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References listed on IDEAS
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.:
  1. Wolinsky, Asher, 1983. "Prices as Signals of Product Quality," Review of Economic Studies, Blackwell Publishing, vol. 50(4), pages 647-58, October. [Downloadable!] (restricted)
  2. Ramon Caminal & Xavier Vives, 1996. "Why Market Shares Matter: An Information-Based Theory," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 221-239, Summer. [Downloadable!] (restricted)
  3. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October. [Downloadable!] (restricted)
  4. Vives, Xavier, 1984. "Duopoly information equilibrium: Cournot and bertrand," Journal of Economic Theory, Elsevier, vol. 34(1), pages 71-94, October. [Downloadable!] (restricted)
  5. Gal-Or, Esther, 1985. "Information Sharing in Oligopoly," Econometrica, Econometric Society, vol. 53(2), pages 329-43, March. [Downloadable!] (restricted)
  6. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August. [Downloadable!] (restricted)
  7. Bagwell, Kyle & Riordan, Michael H, 1991. "High and Declining Prices Signal Product Quality," American Economic Review, American Economic Association, vol. 81(1), pages 224-39, March. [Downloadable!] (restricted)
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  8. Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 796-821, August. [Downloadable!] (restricted)
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  9. Nelson, Philip, 1974. "Advertising as Information," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 729-54, July/Aug.. [Downloadable!] (restricted)
  10. Judd, Kenneth L & Riordan, Michael H, 1994. "Price and Quality in a New Product Monopoly," Review of Economic Studies, Blackwell Publishing, vol. 61(4), pages 773-89, October. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Paulo Klinger Monteiro & José Luis Moraga-González, 2003. "We Sold a Million Units -- The Role of Advertising Past-Sales," Revista Brasileira de Economia, Graduate School of Economics, Getulio Vargas Foundation (Brazil), vol. 57(2), April. [Downloadable!]
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