Uninformative Advertising as an Invitation to Search
What the firm should say in an advertising message, the choice of content , is a critical managerial decision. Here, we focus on a particular aspect of the advertising content choice: an attribute-focused appeal versus an appeal with no direct information on product attributes. We make two assumptions that capture the reality of the advertising context. First, we assume that the bandwidth of advertising is limited: a firm can only communicate about a limited number of attributes. Second, we assume that consumers are active: they can choose to engage in a costly search to obtain additional product-related information. In this setting, we show that there exists an equilibrium where the high-quality firm chooses to produce messages devoid of any attribute information in order to invite the consumer to engage in search, which is likely to uncover positive information about the product. Whereas most of the previous literature has focused on the decision to advertise as a signal of quality, we show that message content, coupled with consumer search, can also serve as a credible signal of quality. In an extension, we show that our results are robust to endogenizing the firm's decision on the amount of advertising spending.
Volume (Year): 30 (2011)
Issue (Month): 4 (July)
|Contact details of provider:|| Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA|
Web page: http://www.informs.org/
More information through EDIRC
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.:
- Simon P. Anderson & Régis Renault, 2002.
Virginia Economics Online Papers
362, University of Virginia, Department of Economics.
- Dmitri Kuksov, 2007. "Brand Value in Social Interaction," Management Science, INFORMS, vol. 53(10), pages 1634-1644, October.
- 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.
- Kihlstrom, Richard E & Riordan, Michael H, 1984. "Advertising as a Signal," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 427-450, June.
- Schmalensee, Richard, 1978. "A Model of Advertising and Product Quality," Journal of Political Economy, University of Chicago Press, vol. 86(3), pages 485-503, June.
- Monic Sun, 2011. "Disclosing Multiple Product Attributes," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(1), pages 195-224, 03.
- Gene M. Grossman & Carl Shapiro, 1984. "Informative Advertising with Differentiated Products," Review of Economic Studies, Oxford University Press, vol. 51(1), pages 63-81.
- Kyle Bagwell & Garey Ramey, 1994.
"Advertising and Coordination,"
Review of Economic Studies,
Oxford University Press, vol. 61(1), pages 153-171.
- Paul R. Milgrom & John Roberts, 1984.
"Price and Advertising Signals of Product Quality,"
Cowles Foundation Discussion Papers
709, Cowles Foundation for Research in Economics, Yale University.
- Nick Feltovich & Richmond Harbaugh & Ted To, 2002. "Too Cool for School? Signalling and Countersignalling," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 630-649, Winter.
- Meurer, Michael & Stahl, Dale II, 1994. "Informative advertising and product match," International Journal of Industrial Organization, Elsevier, vol. 12(1), pages 1-19, March.
- Nelson, Philip, 1974. "Advertising as Information," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 729-754, July/Aug..
- David Godes & Dina Mayzlin, 2004. "Using Online Conversations to Study Word-of-Mouth Communication," Marketing Science, INFORMS, vol. 23(4), pages 545-560, June.
- In-Koo Cho & David M. Kreps, 1997.
"Signaling Games and Stable Equilibria,"
Levine's Working Paper Archive
896, David K. Levine.
- Birger Wernerfelt, 1988. "Umbrella Branding as a Signal of New Product Quality: An Example of Signalling by Posting a Bond," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 458-466, Autumn.
- Yubo Chen & Jinhong Xie, 2008. "Online Consumer Review: Word-of-Mouth as a New Element of Marketing Communication Mix," Management Science, INFORMS, vol. 54(3), pages 477-491, March.
- Hans K. Hvide, 2003. "Education and the Allocation of Talent," Journal of Labor Economics, University of Chicago Press, vol. 21(4), pages 945-976, October.
- Preyas S. Desai & Kannan Srinivasan, 1995. "Demand Signalling Under Unobservable Effort in Franchising: Linear and Nonlinear Price Contracts," Management Science, INFORMS, vol. 41(10), pages 1608-1623, October.
- Aloisio Araujo & Daniel Gottlieb & Humberto Moreira, 2007. "A model of mixed signals with applications to countersignalling," RAND Journal of Economics, RAND Corporation, vol. 38(4), pages 1020-1043, December.
- Sridhar Moorthy & Kannan Srinivasan, 1995. "Signaling Quality with a Money-Back Guarantee: The Role of Transaction Costs," Marketing Science, INFORMS, vol. 14(4), pages 442-466.
- Pradeep Bhardwaj & Yuxin Chen & David Godes, 2008. "Buyer-Initiated vs. Seller-Initiated Information Revelation," Management Science, INFORMS, vol. 54(6), pages 1104-1114, June.
- Paul R. Milgrom, 1979.
"Good Nevs and Bad News: Representation Theorems and Applications,"
407R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn.
- Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," Journal of Law, Economics and Organization, Oxford University Press, vol. 2(2), pages 181-214, Fall.
- McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-230, March.
- Scott, Linda M, 1994. " Images in Advertising: The Need for a Theory of Visual Rhetoric," Journal of Consumer Research, Oxford University Press, vol. 21(2), pages 252-273, September.
- Gerard R. Butters, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 465-491.
- Duncan Simester, 1995. "Signalling Price Image Using Advertised Prices," Marketing Science, INFORMS, vol. 14(2), pages 166-188.
- Bagwell, Kyle, 2007. "The Economic Analysis of Advertising," Handbook of Industrial Organization, Elsevier.
- Teoh, Siew Hong & Hwang, Chuan Yang, 1991. "Nondisclosure and Adverse Disclosure as Signals of Firm Value," Review of Financial Studies, Society for Financial Studies, vol. 4(2), pages 283-313.
When requesting a correction, please mention this item's handle: RePEc:inm:ormksc:v:30:y:2011:i:4:p:666-685. 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: (Mirko Janc)
If references are entirely missing, you can add them using this form.