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Price-increasing competition by heterogeneous marketing strategies

Author

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  • Kultti, Klaus
  • Pekkarinen, Teemu

Abstract

We study the price competition between two firms that have to advertise to reach buyers. We show that differences in advertising strategies can result in price-increasing competition. Advertising can be either informative or persuasive; the former informs buyers about the price of the standard good, and the latter increases buyers’ willingness to pay of the branded good. We show that when firms engage in different advertising methods, the pricing is in pure strategies, and if branding is effective, the firm using persuasive advertising asks a price that is higher than the monopoly price of the branded good (and, a fortiori, higher than the monopoly price of the standard good).

Suggested Citation

  • Kultti, Klaus & Pekkarinen, Teemu, 2025. "Price-increasing competition by heterogeneous marketing strategies," Research in Economics, Elsevier, vol. 79(4).
    • Handle: RePEc:eee:reecon:v:79:y:2025:i:4:s1090944325000663
    DOI: 10.1016/j.rie.2025.101095
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design

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