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Signalling Price Image Using Advertised Prices


  • Duncan Simester

    (University of Chicago)


This paper addresses the issue of retail price image by offering an explanation for how and when stores can use their advertised prices to signal the prices of other products in the store. A model of a two-product retail market is presented in which stores advertise the price of one product and customers do not know the price of the other product before selecting which store to visit. In a model with full customer information, stores with different marginal costs charge different prices for each product. When customers do not know each store's marginal cost type, an opportunity arises for each store to signal its cost type using its advertised prices. In such a model, additional equilibria exist. In particular, stores with different costs may charge the same advertised price while continuing to charge different prices for the unadvertised product. Data from competing drycleaning stores is generally consistent with the model predictions. A number of additional properties of the equilibria are discussed and possible extensions to the model are proposed.

Suggested Citation

  • Duncan Simester, 1995. "Signalling Price Image Using Advertised Prices," Marketing Science, INFORMS, vol. 14(2), pages 166-188.
  • Handle: RePEc:inm:ormksc:v:14:y:1995:i:2:p:166-188

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    References listed on IDEAS

    1. Hauser, John R. & Urban, Glen L., 1975. "A normative methodology for modeling consumer response to innovation," Working papers 785-75., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    2. Griffin, Abbie. & Hauser, John R., 1991. "The marketing and R & D interface," Working papers #48-91. Working paper (Sl, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    3. Green, Paul E & Srinivasan, V, 1978. " Conjoint Analysis in Consumer Research: Issues and Outlook," Journal of Consumer Research, Oxford University Press, vol. 5(2), pages 103-123, Se.
    4. George P. Huber, 1974. "Multi-Attribute Utility Models: A Review of Field and Field-Like Studies," Management Science, INFORMS, vol. 20(10), pages 1393-1402, June.
    5. John R. Hauser, 1977. "Testing the Accuracy," Discussion Papers 286, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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    signalling; pricing; price image; advertising;


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