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Experimental evidence on advertising and price competition

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  • Ninghua Du

Abstract

Theory (Du, 2008) predicts that equilibrium prices will be lower when firms' advertising conveys the price than when it does not convey the price. In the laboratory sessions, sellers make two decisions: what price to set, and whether to advertise to eliminate consumer search costs for their product. The two experimental conditions are (1) advertising the price, or (2) advertising before pricing. Data from ten sessions indicate that, as predicted, firms choose more often to advertise when advertising conveys price, and prices in the second treatment are significantly higher than prices in the first treatment.

Suggested Citation

  • Ninghua Du, 2009. "Experimental evidence on advertising and price competition," New Zealand Economic Papers, Taylor & Francis Journals, vol. 43(2), pages 191-202.
  • Handle: RePEc:taf:nzecpp:v:43:y:2009:i:2:p:191-202 DOI: 10.1080/00779950903005523
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    References listed on IDEAS

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    Keywords

    experiment; advertising; search cost; pricing;

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