IDEAS home Printed from
   My bibliography  Save this article

An equilibrium model of advertising, production and exchange


  • Kjell Hausken


An equilibrium model of advertising, production and exchange is developed. Sellers advertise and produce. In contrast to models where one side is often kept to its reservation value, both sides of the exchange are made worse off due to distortive advertising. Buyers read advertising, screen for quality of each good, choose prices optimally and provide a numeraire good (or money) in exchange. The total numbers of sellers of the two types determine the total production. The total number of buyers determines the total presence of the numeraire good. An advertising attention function adjusts how buyers pay attention to advertising. The competitiveness of the market plays a role. Advertising causes scarcity of goods which causes a price effect which is adjusted for. Search costs for choosiness are introduced for buyers screening for quality, which reduces the amount of the numeraire good held by buyers, causing less to be provided to sellers.

Suggested Citation

  • Kjell Hausken, 2011. "An equilibrium model of advertising, production and exchange," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 3(4), pages 407-442.
  • Handle: RePEc:ids:ijecbr:v:3:y:2011:i:4:p:407-442

    Download full text from publisher

    File URL:
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ids:ijecbr:v:3:y:2011:i:4:p:407-442. 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: (Darren Simpson). General contact details of provider: .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.