Advertising and Coordination
When market information such as price is difficult to communicate, consumers and firms may be unable to take advantage of mutually beneficial scale economies so that coordination failures arise. Ostensibly uninformative advertising expenditures can be used to eliminate coordination failures by allowing an efficient firm to communicate implicitly that it offers a low price. This provides a theoretical explanation for L. Benham's (1972) empirical association of the ability to advertise with lower prices and larger scale. Advertising becomes necessary for optimal coordination when the identity of the efficient firm is uncertain. An application to loss-leader pricing is developed. Copyright 1994 by The Review of Economic Studies Limited.
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Volume (Year): 61 (1994)
Issue (Month): 1 (January)
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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.:
- Bagwell, Kyle, 1987.
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- Katz, Michael L & Shapiro, Carl, 1986. "Technology Adoption in the Presence of Network Externalities," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 822-41, August.
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