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Random Advertising and Monopolistic Price Dispersion

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  • Bester, Helmut

Abstract

We investigate the role of price advertising in a market where consumers are imperfectly informed about prices. We consider a monopolist whose demand depends on price and advertising expenditure. This demand function is derived from optimizing behavior of consumers. Uninformed consumers may pay a cost to visit the seller and obtain price information. Advertising enables the monopolist to increase the number of informed consumers. In equilibrium the uninformed consumers form rational price expectations, and the seller necessarily adopts a random pricing and advertising strategy. Copyright 1994 by MIT Press.

Suggested Citation

  • Bester, Helmut, 1994. "Random Advertising and Monopolistic Price Dispersion," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(3), pages 545-559, Fall.
    • Handle: RePEc:bla:jemstr:v:3:y:1994:i:3:p:545-59
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    Cited by:

    1. Strausz Roland, 2007. "Regulating Availability with Demand Uncertainty," German Economic Review, De Gruyter, vol. 8(1), pages 107-121, February.
    2. David Paton, 1998. "Who A dvertises Prices? A Firm Level Study Based on Survey Data," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 5(1), pages 57-75.
    3. Bester, Helmut & Petrakis, Emmanuel, 1995. "Price competition and advertising in oligopoly," European Economic Review, Elsevier, vol. 39(6), pages 1075-1088, June.
    4. Cason, Timothy N. & Datta, Shakun, 2006. "An experimental study of price dispersion in an optimal search model with advertising," International Journal of Industrial Organization, Elsevier, vol. 24(3), pages 639-665, May.
    5. Rhodes, Andrew, 2011. "Multiproduct pricing and the Diamond Paradox," MPRA Paper 32511, University Library of Munich, Germany.

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