Advertising, Brand Loyalty and Pricing
I construct a model in which an oligopoly first invests in persuasive advertising in order to induce brand loyalty to consumers who would otherwise buy the cheapest alternative on the market, and then competes in prices. Despite ex-ante symmetry, at equilibrium, there is one firm which chooses a lower advertising level, while the remaining ones choose the same higher advertising. For the endogenous profile of advertising expenditure, there are a family of pricing equilibria with at least two firms randomizing on prices. The setting oﬀers a way of modelling homogenous product markets where persuasive advertising creates subjective product diﬀerentiation and changes the nature of subsequent price competition. The pricing stage of the model can be regarded as a variant of the Model of Sales by Varian (1980) and the two stage game as a way to endogenize consumers heterogeneity raising a robustness question to VarianÂ¿s symmetric setting.
(This abstract was borrowed from another version of this item.)
|Date of creation:||03 Feb 2005|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 34 93 592 1203
Fax: +34 93 542-1223
Web page: http://pareto.uab.cat
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Metwally, M M, 1976. "Profitability of Advertising in Australia: A Case Study," Journal of Industrial Economics, Wiley Blackwell, vol. 24(3), pages 221-31, March.
- James H. Pedrick & Fred S. Zufryden, 1991. "Evaluating the Impact of Advertising Media Plans: A Model of Consumer Purchase Dynamics Using Single-Source Data," Marketing Science, INFORMS, vol. 10(2), pages 111-130.
- Michael R. Baye & John Morgan, 2001. "Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets," American Economic Review, American Economic Association, vol. 91(3), pages 454-474, June.
- Baltagi, Badi H & Levin, Dan, 1986. "Estimating Dynamic Demand for Cigarettes Using Panel Data: The Effects of Bootlegging, Taxation and Advertising Reconsidered," The Review of Economics and Statistics, MIT Press, vol. 68(1), pages 148-55, February.
- Victor Tremblay & Stephen Polasky, 2002. "Advertising with Subjective Horizontal and Vertical Product Differentiation," Review of Industrial Organization, Springer, vol. 20(3), pages 253-265, May.
- Amir, Rabah & Wooders, John, 1997.
"One-Way Spillovers, Endogenous Innovator/Imitator Roles and Research Joint Ventures,"
43, Institute for Advanced Studies.
- Amir, Rabah & Wooders, John, 2000. "One-Way Spillovers, Endogenous Innovator/Imitator Roles, and Research Joint Ventures," Games and Economic Behavior, Elsevier, vol. 31(1), pages 1-25, April.
- Rabah Amir & John Wooders, 1998. "One-Way Spillovers, Endogenous Innovator/Imitator Roles and Research Jointventures," CIE Discussion Papers 1998-10, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
- AMIR, Rabah & WOODERS, John, 1997. "One-way spillovers, endogenous innovator/imitator roles and research joint ventures," CORE Discussion Papers 1997027, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Michael R. Baye & John Morgan, 2005.
"Brand and Price Advertising in Online Markets,"
2005-08, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
- Michael Baye & John Morgan, 2005. "Brand and Price Advertising in Online Markets," Microeconomics 0504009, EconWPA.
- Baye, Michael & Morgan, John, 2004. "Brand and Price Advertising in Online Markets," Competition Policy Center, Working Paper Series qt9760k3hz, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
- Friedman,James, 1983.
Cambridge University Press, number 9780521282444.
- McAfee R. Preston, 1994. "Endogenous Availability, Cartels, and Merger in an Equilibrium Price Dispersion," Journal of Economic Theory, Elsevier, vol. 62(1), pages 24-47, February.
- Klemperer, Paul D, 1987. "Entry Deterrence in Markets with Consumer Switching Costs," Economic Journal, Royal Economic Society, vol. 97(388a), pages 99-117, Supplemen.
- Dasgupta, Partha & Maskin, Eric, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," Review of Economic Studies, Wiley Blackwell, vol. 53(1), pages 1-26, January.
- Von der Fehr, N.H.M. & Stevik, K., 1996.
"Persuasive Advertising and Product Differentiation,"
01/1996, Oslo University, Department of Economics.
- 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.
- Klemperer, Paul, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 375-94, May.
- Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, June.
- Colin Camerer & George Loewenstein & Drazen Prelec, 2003. "Neuroeconomics: How neuroscience can inform economics," Levine's Bibliography 506439000000000484, UCLA Department of Economics.
- Bloch, Francis & Manceau, Delphine, 1999. "Persuasive advertising in Hotelling's model of product differentiation," International Journal of Industrial Organization, Elsevier, vol. 17(4), pages 557-574, May.
- Glenn Ellison & Sara Fisher Ellison, 2004.
"Search, Obfuscation, and Price Elasticities on the Internet,"
NBER Working Papers
10570, National Bureau of Economic Research, Inc.
- Glenn Ellison & Sara Fisher Ellison, 2009. "Search, Obfuscation, and Price Elasticities on the Internet," Econometrica, Econometric Society, vol. 77(2), pages 427-452, 03.
- Loewenstein, George, 2001. " The Creative Destruction of Decision Research," Journal of Consumer Research, University of Chicago Press, vol. 28(3), pages 499-505, December.
- Daniel Kahneman, 2003. "Maps of Bounded Rationality: Psychology for Behavioral Economics," American Economic Review, American Economic Association, vol. 93(5), pages 1449-1475, December.
- Butters, Gerard R, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 465-91, October.
- Kelton, Christina M L & Kelton, W David, 1982. "Advertising and Intraindustry Brand Shift in the U.S. Brewing Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 30(3), pages 293-303, March.
- George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213.
- Baye, Michael R. & Kovenock, Dan & de Vries, Casper G., 1992. "It takes two to tango: Equilibria in a model of sales," Games and Economic Behavior, Elsevier, vol. 4(4), pages 493-510, October.
- Schmalensee, Richard, 1976. "A Model of Promotional Competition in Oligopoly," Review of Economic Studies, Wiley Blackwell, vol. 43(3), pages 493-507, October.
- Narasimhan, Chakravarthi, 1988. "Competitive Promotional Strategies," The Journal of Business, University of Chicago Press, vol. 61(4), pages 427-49, October.
- Rosenthal, Robert W, 1980. "A Model in Which an Increase in the Number of Sellers Leads to a Higher Price," Econometrica, Econometric Society, vol. 48(6), pages 1575-79, September.
- Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
- Robert, Jacques & Stahl, Dale O, II, 1993. "Informative Price Advertising in a Sequential Search Model," Econometrica, Econometric Society, vol. 61(3), pages 657-86, May.
- Stahl, Dale O, II, 1989. "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, American Economic Association, vol. 79(4), pages 700-712, September.
- Bagwell, Kyle, 2007. "The Economic Analysis of Advertising," Handbook of Industrial Organization, Elsevier.
When requesting a correction, please mention this item's handle: RePEc:aub:autbar:639.05. 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: (Xavier Vila)
If references are entirely missing, you can add them using this form.