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Polymorphic Equilibrium in Advertising

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  • William Hallagan
  • Wayne Joerding

Abstract

This article is concerned with the possibility that natural selection can lead to an evolutionarily stable equilibrium where otherwise identical profit maximizing firms follow distinctly different strategies. In biology such occurrences are called polymorphic equilibrium. We develop a model of nonprice competition and from this model two classes of polymorphic equilibria arise. In the first class, advertising by expanding market demand can create a niche large enough to sustain entry by nonadvertising firms. Thus, otherwise identical firms following advertising and no advertising strategies can coexist with equal profits in a polymorphic equilibrium The second class of polymorphic equilibria includes the case where advertising does not expand market demand and instead only affects market shares. The article concludes with a discussion of the implications that polymorphism has for empirical work in economics.

Suggested Citation

  • William Hallagan & Wayne Joerding, 1983. "Polymorphic Equilibrium in Advertising," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 191-201, Spring.
  • Handle: RePEc:rje:bellje:v:14:y:1983:i:spring:p:191-201
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    References listed on IDEAS

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    1. Samet, Dov & Tauman, Yair, 1982. "The Determination of Marginal Cost Prices under a Set of Axioms," Econometrica, Econometric Society, vol. 50(4), pages 895-909, July.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Not Only the Fittest Survive
      by Mark Thoma in Economist's View on 2011-03-28 12:24:00
    2. Loyalty Cards and Polymorphic Equilibria
      by Mark Thoma in Economist's View on 2008-05-16 15:33:00

    Citations

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    Cited by:

    1. Shaffer, Sherrill, 2004. "Patterns of competition in banking," Journal of Economics and Business, Elsevier, vol. 56(4), pages 287-313.
    2. Matthew Sackett & Sherrill Shaffer, 2006. "Substitutes versus complements among credit risk management tools," Applied Financial Economics, Taylor & Francis Journals, vol. 16(14), pages 1007-1017.
    3. Barton Lipman, 1986. "Cooperation among egoists in Prisoners' Dilemma and Chicken games," Public Choice, Springer, vol. 51(3), pages 315-331, January.
    4. Victor Tremblay & Stephen Polasky, 2002. "Advertising with Subjective Horizontal and Vertical Product Differentiation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 20(3), pages 253-265, May.
    5. Curry, Timothy J. & Rose, John T., 1997. "Thrift strategies after FIRREA: A cluster analysis of high-performance institutions," Journal of Economics and Business, Elsevier, vol. 49(3), pages 223-238.
    6. Stivers, Andrew & Tremblay, Victor J., 2005. "Advertising, search costs, and social welfare," Information Economics and Policy, Elsevier, vol. 17(3), pages 317-333, July.

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