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Hidden advertisement, signaling, and directed search

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  • Ji-Woong Moon

    (Korea Institute of Public Finance)

Abstract

This paper studies a directed search model where sellers have limited capacities, and buyers cannot observe the varying number of advertisements each seller sends. In the presence of this asymmetric information, the limit purchase and selling probabilities as the market size increases are derived. The limit equilibrium is fully separating, where sellers with low advertisement intensity choose a lower price to signal. The equilibrium is not constrained inefficient, and equilibrium welfare is higher either when advertisements are highly costly or free. Buyers are better off in equilibrium than in the efficient allocation due to the lower price and benefit from more expensive advertisements.

Suggested Citation

  • Ji-Woong Moon, 2025. "Hidden advertisement, signaling, and directed search," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 79(1), pages 57-87, February.
    • Handle: RePEc:spr:joecth:v:79:y:2025:i:1:d:10.1007_s00199-023-01542-9
    DOI: 10.1007/s00199-023-01542-9
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    References listed on IDEAS

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    More about this item

    Keywords

    Advertisement; Signaling; Directed search; Welfare;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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