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Specialized advertising and price competition with endogenous advertising fees

Author

Listed:
  • Jose M. Hernandez

    (University of Zaragoza)

  • Lola Esteban

    (University of Zaragoza)

Abstract

This paper studies how the strategic interaction between a specialized communication platform and two firms, competing in prices and advertising efforts, determines the equilibrium advertising fee and the pattern of competition between sellers. We show that the link between information and price competition in the product market leads the platform to ask for high prices for its advertising services, in the sense that the resulting product prices rise to the level where the marginal potential consumer achieves zero utility, so firms can exercise a high degree of market power and consumers achieve a low surplus.

Suggested Citation

  • Jose M. Hernandez & Lola Esteban, 2011. "Specialized advertising and price competition with endogenous advertising fees," Economics Bulletin, AccessEcon, vol. 31(2), pages 1686-1695.
    • Handle: RePEc:ebl:ecbull:eb-11-00241
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I2-P154.pdf
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    References listed on IDEAS

    as
    1. Gene M. Grossman & Carl Shapiro, 1984. "Informative Advertising with Differentiated Products," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(1), pages 63-81.
    2. Anthony Dukes, 2004. "The Adverstising Market in a Product Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 52(3), pages 327-348, September.
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    Cited by:

    1. Lola Esteban & José Hernández, 2014. "Endogenous direct advertising and price competition," Journal of Economics, Springer, vol. 112(3), pages 225-251, July.
    2. Esteban, Lola & Hernández, José M., 2017. "Direct advertising and opt-in provisions: Policy and market implications," Information Economics and Policy, Elsevier, vol. 39(C), pages 15-25.

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    More about this item

    Keywords

    informative advertising; price competition; horizontal differentiation.;
    All these keywords.

    JEL classification:

    • L0 - Industrial Organization - - General

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