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Caught In A Stranglehold? Advertising: What Else?

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  • LAURENT LINNEMER

Abstract

I analyze a quality signaling problem by a monopoly introducing a new experience good. A high-quality type aims to signal itself to consumers but can be imitated by a low‐quality type with either a low or a high cost. In the unique separating equilibrium after deletion of dominated strategies, the high‐quality type separates through a marketing mix of price and dissipative advertising. Advertising is used despite the absence of repeat purchases or informed consumers.

Suggested Citation

  • Laurent Linnemer, 2011. "Caught In A Stranglehold? Advertising: What Else?," Manchester School, University of Manchester, vol. 79(1), pages 63-80, January.
  • Handle: RePEc:bla:manchs:v:79:y:2011:i:1:p:63-80
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    File URL: http://hdl.handle.net/10.1111/j.1467-9957.2010.02182.x
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    References listed on IDEAS

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    1. Linnemer, Laurent, 2002. "Price and advertising as signals of quality when some consumers are informed," International Journal of Industrial Organization, Elsevier, vol. 20(7), pages 931-947, September.
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