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Advertising and consumer search in a duopoly model

  • Janssen, Maarten C.W.
  • Non, Marielle C.

We consider a duopoly in a homogenous goods market where part of the consumers are ex ante uninformed about prices. Information can come through two different channels: advertising and sequential consumer search. We arrive at the following results. First, there is no monotone relationship between prices and the degree of advertising. Second, advertising and search are “substitutes” for a large range of parameters. Third, when the cost of either search or advertising vanishes, the competitive outcome arises. Finally, both expected advertised and non-advertised prices are non-monotonic in search cost. One of the implications is that firms actually may benefit from consumers having low (rather than high) search costs. This discussion paper has resulted in a publication in International Journal of Industrial Organization , 2008, 26(1), 354-71.

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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 26 (2008)
Issue (Month): 1 (January)
Pages: 354-371

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Handle: RePEc:eee:indorg:v:26:y:2008:i:1:p:354-371
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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  1. Jean-Pierre Dube & Guenter J. Hitsch & Peter Rossi, 2006. "Do Switching Costs Make Markets Less Competitive?," 2006 Meeting Papers 514, Society for Economic Dynamics.
  2. Paul Klemperer, 1987. "The Competitiveness of Markets with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 138-150, Spring.
  3. Gerard R. Butters, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 465-491.
  4. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-69, July.
  5. Robert, Jacques & Stahl, Dale O, II, 1993. "Informative Price Advertising in a Sequential Search Model," Econometrica, Econometric Society, vol. 61(3), pages 657-86, May.
  6. Janssen, Maarten C.W. & Moraga-Gonzalez, Jose Luis & Wildenbeest, Matthijs R., 2005. "Truly costly sequential search and oligopolistic pricing," International Journal of Industrial Organization, Elsevier, vol. 23(5-6), pages 451-466, June.
  7. J. Yannis Bakos, 1997. "Reducing Buyer Search Costs: Implications for Electronic Marketplaces," Management Science, INFORMS, vol. 43(12), pages 1676-1692, December.
  8. Maarten C.W. Janssen & Jose Luis Moraga-Gonzalez & Matthijs R. Wildenbeest, 2004. "A Note on Costly Sequential Search and Oligopoly Pricing," Tinbergen Institute Discussion Papers 04-068/1, Tinbergen Institute.
  9. Stahl, Dale O, II, 1989. "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, American Economic Association, vol. 79(4), pages 700-712, September.
  10. Stahl II Dale O., 1994. "Oligopolistic Pricing and Advertising," Journal of Economic Theory, Elsevier, vol. 64(1), pages 162-177, October.
  11. Jose Luis Moraga-Gonzalez & Matthijs R. Wildenbeest, 0000. "Maximum Likelihood Estimation of Search Costs," Tinbergen Institute Discussion Papers 06-019/1, Tinbergen Institute.
  12. Janssen, Maarten C.W. & Non, Marielle C., 2008. "Advertising and consumer search in a duopoly model," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 354-371, January.
  13. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
  14. 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.
  15. Dmitri Kuksov, 2004. "Buyer Search Costs and Endogenous Product Design," Marketing Science, INFORMS, vol. 23(4), pages 490-499, May.
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