IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

The Threshold Effect of Advertising on the Intensity of Price Promotions: Using a Rational Expectations Model

Listed author(s):
  • Guan Ru Chen
Registered author(s):

    Due to the downward sloping demand curve, a retailer can use price promotions to induce store traffic. On the other hand, price promotions can bring negative effects that increase consumers' conditional risks over quality, so that the results expected by retailers may not be achieved. This study investigates whether manufacturer advertising can mitigate the negative effects caused by retailer price promotions. A rational expectation model shows that the relation between advertising and price promotions is not unidirectional. A threshold exists that can ensure whether an increase in advertising expenditures reduces negative effects from price promotions. When advertising coverage exceeds this threshold, an increase in advertising expenditures mitigates negative effects and makes price promotions an effective way to build store traffic. Below the threshold, an increase in advertising expenditures might aggravate the negative effects from price promotions and decrease price sensitivity. Accordingly, marketing practitioners can design product pricing decisions depending on whether advertising information crosses this threshold.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Taylor & Francis Journals in its journal Journal of Media Economics.

    Volume (Year): 24 (2011)
    Issue (Month): 2 (June)
    Pages: 98-110

    in new window

    Handle: RePEc:taf:jmedec:v:24:y:2011:i:2:p:98-110
    DOI: 10.1080/08997764.2011.573383
    Contact details of provider: Web page:

    Order Information: Web:

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:taf:jmedec:v:24:y:2011:i:2:p:98-110. 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: (Michael McNulty)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.