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Informative advertising by heterogeneous firms

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  • Dinlersoz, Emin M.
  • Yorukoglu, Mehmet

Abstract

This paper introduces a model to analyze the role of the cost of information dissemination in large markets where firms have varying degrees of intrinsic efficiency reflected in their marginal costs. Firms enter a market and discover how efficient they are. Those firms with high enough efficiency stay, others exit. Remaining firms then compete to attract consumers by disseminating information about their existence and their prices using a common advertising technology. The properties of the model's equilibrium are analyzed. The model is then used to study the effect of the cost of information dissemination on the competitiveness of the market and key industry aggregates, such as price distribution and the distribution of firm value.

Suggested Citation

  • Dinlersoz, Emin M. & Yorukoglu, Mehmet, 2008. "Informative advertising by heterogeneous firms," Information Economics and Policy, Elsevier, vol. 20(2), pages 168-191, June.
  • Handle: RePEc:eee:iepoli:v:20:y:2008:i:2:p:168-191
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    References listed on IDEAS

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    11. Emin M. Dinlersoz & Mehmet Yorukoglu, 2012. "Information and Industry Dynamics," American Economic Review, American Economic Association, pages 884-913.
    12. Reinganum, Jennifer F, 1979. "A Simple Model of Equilibrium Price Dispersion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 851-858, August.
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    16. Emin M. Dinlersoz & Mehmet Yorukoglu, 2012. "Information and Industry Dynamics," American Economic Review, American Economic Association, pages 884-913.
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    Cited by:

    1. Costas Arkolakis, 2010. "Market Penetration Costs and the New Consumers Margin in International Trade," Journal of Political Economy, University of Chicago Press, vol. 118(6), pages 1151-1199.
    2. Fan, Haichao & Lai, Edwin L.-C. & Li, Yao Amber, 2015. "Credit constraints, quality, and export prices: Theory and evidence from China," Journal of Comparative Economics, Elsevier, pages 390-416.
    3. Fan, Haichao & Lai, Edwin L.-C. & Li, Yao Amber, 2015. "Credit constraints, quality, and export prices: Theory and evidence from China," Journal of Comparative Economics, Elsevier, pages 390-416.

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