Informative advertising in differentiated oligopoly markets
This paper examines the welfare implications of informative advertising in differentiated product oligopoly markets. The analysis reconciles the conflicting results in previous studies that find advertising to be undersupplied in homogeneous product markets, but oversupplied in differentiated product markets when the degree of differentiation is "small". In equilibrium, purely informative advertising is undersupplied when brands are sufficiently close substitutes and oversupplied when brands are more differentiated. Product differentiation also has welfare implications for the effect of technological change in the advertising sector. In response to an advertising cost innovation, equilibrium prices fall and the market converges to the socially optimal resource allocation for brands that are sufficiently close substitutes, whereas equilibrium prices rise and divergence occurs when brands are more differentiated.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
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.:
- David A. Soberman, 2004. "Research Note: Additional Learning and Implications on the Role of Informative Advertising," Management Science, INFORMS, vol. 50(12), pages 1744-1750, December.
- Jon P. Nelson, 1999. "Broadcast Advertising and U.S. Demand for Alcoholic Beverages," Southern Economic Journal, Southern Economic Association, vol. 65(4), pages 774-790, April.
- Roberts, M.J. & Samuelson, L., 1988.
"An Empirical Analysis Of Dynamic, Non-Price Competition In An Oligopolistic Industry,"
3-88-14, Pennsylvania State - Department of Economics.
- Mark J. Roberts & Larry Samuelson, 1988. "An Empirical Analysis of Dynamic, Nonprice Competition in an Oligopolistic Industry," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 200-220, Summer.
- Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
- Lancaster, Kelvin, 1975. "Socially Optimal Product Differentiation," American Economic Review, American Economic Association, vol. 65(4), pages 567-85, September.
- Stegeman, Mark, 1991. "Advertising in Competitive Markets," American Economic Review, American Economic Association, vol. 81(1), pages 210-23, March.
- Dixit, Avinash K & Stiglitz, Joseph E, 1975.
"Monopolistic Competition and Optimum Product Diversity,"
The Warwick Economics Research Paper Series (TWERPS)
64, University of Warwick, Department of Economics.
- Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
- A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 417-429, Autumn.
- GARY-BOBO, Robert J. & MICHEL, Philippe, .
"Informative advertising and competition: a noncooperative approach,"
CORE Discussion Papers RP
940, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Gary-Bobo, Robert J & Michel, Philippe, 1991. "Informative Advertising and Competition: A Noncooperative Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(2), pages 321-39, May.
- Gary-Bobo, R.J. & Michel, P., 1988. "Informative advertising and competition: a non-cooperative approach," CORE Discussion Papers 1988011, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Stahl II Dale O., 1994. "Oligopolistic Pricing and Advertising," Journal of Economic Theory, Elsevier, vol. 64(1), pages 162-177, October.
- Gerard R. Butters, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 465-491.
- Carl Shapiro, 1980. "Advertising and Welfare: Comment," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 749-752, Autumn.
- Ganesh Iyer & David Soberman & J. Miguel Villas-Boas, 2005. "The Targeting of Advertising," Marketing Science, INFORMS, vol. 24(3), pages 461-476, May.
- Gene M. Grossman & Carl Shapiro, 1984. "Informative Advertising with Differentiated Products," Review of Economic Studies, Oxford University Press, vol. 51(1), pages 63-81.
When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:27:y:2009:i:1:p:60-69. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.