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Persuasive Advertising and Product Differentiation

Author

Listed:
  • Nils-Henrik M. von der Fehr
  • Kristin Stevik

Abstract

We suggest a simple framework for characterizing alternative ways that “persuasive advertising” may affect consumer preferences. We illustrate the implications of our theory—and contrast it with results from models of informative advertising—by analyzing the relationship between the degree of product differentiation and equilibrium levels of advertising. The analysis suggests that a positive relationship between equilibrium levels of advertising and (inherent) product substitutability is consistent only with advertising that “increases perceived product differences.”

Suggested Citation

  • Nils-Henrik M. von der Fehr & Kristin Stevik, 1998. "Persuasive Advertising and Product Differentiation," Southern Economic Journal, Southern Economic Association, vol. 65(1), pages 113-126, July.
  • Handle: RePEc:sej:ancoec:v:65:1:y:1998:p:113-126
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    Cited by:

    1. de Frutos, Maria-Angeles & Ornaghi, Carmine & Siotis, Georges, 2013. "Competition in the pharmaceutical industry: How do quality differences shape advertising strategies?," Journal of Health Economics, Elsevier, vol. 32(1), pages 268-285.
    2. repec:dau:papers:123456789/5987 is not listed on IDEAS
    3. Degryse, Hans & Irmen, Andreas, 2001. "Attribute dependence and the provision of quality," Regional Science and Urban Economics, Elsevier, vol. 31(5), pages 547-569, September.
    4. Bertuzzi, Giorgia & Lambertini, Luca, 2010. "Existence of equilibrium in a differential game of spatial competition with advertising," Regional Science and Urban Economics, Elsevier, vol. 40(2-3), pages 155-160, May.
    5. Buehler, Stefan & Halbheer, Daniel, 2012. "Persuading consumers with social attitudes," Journal of Economic Behavior & Organization, Elsevier, pages 439-450.
    6. David Soberman, 2002. "Informative Advertising: An Alternate Viewpoint and Implications," Review of Marketing Science Working Papers 1-3-1009, Berkeley Electronic Press.
    7. Andrea Mantovani & Giordano Mion, 2006. "Advertising and endogenous exit in a differentiated duopoly," Recherches économiques de Louvain, De Boeck Université, vol. 72(1), pages 19-48.
    8. Nelson Sá, 2015. "Market concentration and persuasive advertising: a theoretical approach," Journal of Economics, Springer, vol. 114(2), pages 127-151, March.
    9. Stefan Buehler & Daniel Halbheer, 2011. "Selling when Brand Image Matters," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 167(1), pages 102-118, March.
    10. Wang, Shinn-Shyr & Stiegert, Kyle W., 2006. "The Duopolistic Firm with Endogenous Risk Control: Case of Persuasive Advertising and Product Differentiation," Staff Paper Series 496, University of Wisconsin, Agricultural and Applied Economics.
    11. Griffith, Rachel & Krol, Michal & Smith, Kate, 2015. "Store Brands and the Role of Advertising," CEPR Discussion Papers 10877, C.E.P.R. Discussion Papers.
    12. Chioveanu, Ioana, 2008. "Advertising, brand loyalty and pricing," Games and Economic Behavior, Elsevier, vol. 64(1), pages 68-80, September.
    13. Baojun Jiang & Kannan Srinivasan, 2016. "Pricing and persuasive advertising in a differentiated market," Marketing Letters, Springer, vol. 27(3), pages 579-588, September.
    14. repec:kap:jeczfn:v:122:y:2017:i:1:d:10.1007_s00712-017-0526-8 is not listed on IDEAS
    15. 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.
    16. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899, December.
    17. Oksana Loginova, 2010. "Competitive Effects of Mass Customization," Working Papers 1007, Department of Economics, University of Missouri.
    18. Stivers, Andrew & Tremblay, Victor J., 2005. "Advertising, search costs, and social welfare," Information Economics and Policy, Elsevier, vol. 17(3), pages 317-333, July.
    19. Esther Gal-Or & Mordechai Gal-Or, 2005. "Customized Advertising via a Common Media Distributor," Marketing Science, INFORMS, vol. 24(2), pages 241-253, July.
    20. Kretschmer, Tobias & Rösner, Mariana, 2010. "Increasing Dominance - the Role of Advertising, Pricing and Product Design," Discussion Papers in Business Administration 11500, University of Munich, Munich School of Management.
    21. Uwe Dulleck & Paul Frijters & Konrad Podczeck, 2006. "All-pay auctions with budget constraints and fair insurance," Economics working papers 2006-13, Department of Economics, Johannes Kepler University Linz, Austria.
    22. Yuxin Chen & Yogesh V. Joshi & Jagmohan S. Raju & Z. John Zhang, 2009. "A Theory of Combative Advertising," Marketing Science, INFORMS, vol. 28(1), pages 1-19, 01-02.
    23. Anthony Dukes & Esther Gal–Or, 2003. "Negotiations and Exclusivity Contracts for Advertising," Marketing Science, INFORMS, vol. 22(2), pages 222-245, November.
    24. Tsuyoshi Toshimitsu, 2017. "Optimal Timing of Advertising with Demand Spillovers," Journal of Industry, Competition and Trade, Springer, vol. 17(1), pages 43-60, March.

    More about this item

    JEL classification:

    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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