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Going Where the Ad Leads You: On High Advertised Prices and Searching Where to Buy

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  • Maarten C. W. Janssen

    () (Department of Economics, University of Vienna, 1010 Vienna, Austria, and Department of Economics, Erasmus University Rotterdam, 3000 DR Rotterdam, The Netherlands)

  • Marielle C. Non

    () (Tinbergen Institute, Erasmus University Rotterdam, 3062 PA Rotterdam, The Netherlands, and University of Groningen, 9700 AV Groningen, The Netherlands)

Abstract

An important role of informative advertising is to inform consumers of the simple fact that the shop that advertises sells a particular product. This information may help consumers to save on their search activities: instead of wandering around, a consumer can simply visit the shop that has advertised, knowing that there he can find the commodity he is looking for. The implications of this simple fact have not been studied before. Using game theoretic reasoning in a model that combines consumer search and firms' advertising we show that firms may find it optimal to advertise prices that are higher than nonadvertised prices. The important mechanism underlying this result is that advertising lowers the expected search cost for consumers. Through this analysis we provide a new insight into the role of informative advertising.

Suggested Citation

  • Maarten C. W. Janssen & Marielle C. Non, 2009. "Going Where the Ad Leads You: On High Advertised Prices and Searching Where to Buy," Marketing Science, INFORMS, vol. 28(1), pages 87-98, 01-02.
  • Handle: RePEc:inm:ormksc:v:28:y:2009:i:1:p:87-98
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    File URL: http://dx.doi.org/10.1287/mksc.1080.0377
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:joinma:v:30:y:2015:i:c:p:46-55 is not listed on IDEAS
    2. Roberto Burguet & Vaiva Petrikaite, 2017. "Targeted Advertising and Costly Consumer Search," Working Papers 971, Barcelona Graduate School of Economics.
    3. Wang, Chengsi, 2011. "Informative Advertising, Consumer Search and Transparency Policy," MPRA Paper 34977, University Library of Munich, Germany.
    4. Obradovits, Martin, 2015. "Going to the Discounter: Consumer Search with Local Market Heterogeneities," MPRA Paper 66613, University Library of Munich, Germany.
    5. Dina Mayzlin & Jiwoong Shin, 2011. "Uninformative Advertising as an Invitation to Search," Marketing Science, INFORMS, vol. 30(4), pages 666-685, July.
    6. Ganesh Iyer & Dmitri Kuksov, 2012. "Competition in Consumer Shopping Experience," Marketing Science, INFORMS, vol. 31(6), pages 913-933, November.

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