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Advertising and Conspicuous Consumption

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  • Daniel Krähmer

Abstract

This paper formalizes the intuition that brands are consumed for image reasons and that advertising creates a brand's image. The key idea is that advertising informs the public of brand names and creates the possibility of conspicuous consumption by rendering brands a signalling device. In a price-competition framework, we show that advertising increases consumers' willingness to pay and thus provide a foundation, based on optimization behaviour, for persuasive approaches to advertising. Moreover, an incumbent might strategically overinvest in advertising to deter entry, there might be too much advertising, and competition might be socially undesirable.

Suggested Citation

  • Daniel Krähmer, 2006. "Advertising and Conspicuous Consumption," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 162(4), pages 661-682, December.
  • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200612)162:4_661:aacc_2.0.tx_2-3
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    References listed on IDEAS

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    1. Bester, Helmut & Guth, Werner, 1998. "Is altruism evolutionarily stable?," Journal of Economic Behavior & Organization, Elsevier, vol. 34(2), pages 193-209, February.
    2. Samuel Bowles, 1998. "Endogenous Preferences: The Cultural Consequences of Markets and Other Economic Institutions," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 75-111, March.
    3. Bisin, Alberto & Verdier, Thierry, 2001. "The Economics of Cultural Transmission and the Dynamics of Preferences," Journal of Economic Theory, Elsevier, vol. 97(2), pages 298-319, April.
    4. Ely, Jeffrey C. & Yilankaya, Okan, 2001. "Nash Equilibrium and the Evolution of Preferences," Journal of Economic Theory, Elsevier, vol. 97(2), pages 255-272, April.
    5. Ben-Ner, Avner & Putterman, Louis, 2000. "On some implications of evolutionary psychology for the study of preferences and institutions," Journal of Economic Behavior & Organization, Elsevier, vol. 43(1), pages 91-99, September.
    6. Dirk Engelmann, 2001. "Asymmetric Type Recognition with Applications to Dilemma Games," Metroeconomica, Wiley Blackwell, vol. 52(4), pages 357-375, November.
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    Cited by:

    1. Evdokia Dritsa & Eleftherios Zacharias, 2012. "Price Competition in a Duopoly Characterized by Positional Effects," Working Papers 12-21, NET Institute.
    2. Nick Vikander, 2011. "Targeted Advertising and Social Status," Tinbergen Institute Discussion Papers 11-016/1, Tinbergen Institute.
    3. Azamat Valei, 2017. "Informative Advertising in a Monopoly with Network Externalities," CERGE-EI Working Papers wp596, The Center for Economic Research and Graduate Education - Economics Institute, Prague.

    More about this item

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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