Advertising as Information: Matching Products to Buyers
We consider communication of quality via cheap talk and dissipative advertising expenditures, when consumers have heterogeneous tastes for quality, and price information must be acquired through costly search. For search goods, cheap talk communicates quality when fixed costs are roughly constant across quality levels, while if fixed costs vary greatly with quality, then firms having the higher fixed-cost quality level use dissipative advertising. For experience goods, quality can be communicated by cheap talk in a range where low-quality firms have greater fixed costs, and low-quality firms use dissipative advertising if their fixed costs are greater still. Copyright 1993 by MIT Press.
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Volume (Year): 2 (1993)
Issue (Month): 2 (Summer)
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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.:
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"Price competition, quality and income disparities,"
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Elsevier, vol. 20(3), pages 340-359, June.
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- Archibald, Robert B & Haulman, Clyde A & Moody, Carlisle E, Jr, 1983. " Quality, Price, Advertising, and Published Quality Ratings," Journal of Consumer Research, Oxford University Press, vol. 9(4), pages 347-356, March.
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- Gene M. Grossman & Carl Shapiro, 1984. "Informative Advertising with Differentiated Products," Review of Economic Studies, Oxford University Press, vol. 51(1), pages 63-81.
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