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Existence Advertising, Price Competition, and Asymmetric Market Structure

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Abstract

We examine a two stage duopoly game in which firms advertise their existence to consumers in stage 1 and compete in prices in stage 2. Whenever the advertising technology generates positive overlap in customer bases the equilib- rium for the stage 1 game is asymmetric in that one firm chooses to remain small in comparison to its competitor. For a specific random advertising technology we show that one firm will always be half as large as the other. No equilibrium in pure price strategies exists in the stage 2 game and as long as there is some overlap in customer bases the mixed strategy equilibrium is far from the Bertrand equilibrium.

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  • Curtis B. Eaton & Ian A. MacDonald & Laura Meriluoto, 2008. "Existence Advertising, Price Competition, and Asymmetric Market Structure," Working Papers in Economics 08/20, University of Canterbury, Department of Economics and Finance.
    • Handle: RePEc:cbt:econwp:08/20
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    Cited by:

    1. De Nijs, Romain, 2013. "Information provision and behaviour-based price discrimination," Information Economics and Policy, Elsevier, vol. 25(1), pages 32-40.
    2. David P. Myatt, 2019. "A Theory of Stable Price Dispersion," Economics Series Working Papers 873, University of Oxford, Department of Economics.
    3. Pedro Gomis-Porqueras & Benoit Julien & Chengsi Wang, 2012. "Informative Advertising in Directed Search," Discussion Papers 2012-26, School of Economics, The University of New South Wales.
    4. Michael Arnold & Eric Schmidbauer & Lan Zhang, 2022. "Uniform and targeted informative advertising with asymmetric customer loyalty," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(1), pages 90-114, February.

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    More about this item

    Keywords

    Existence advertising; price dispersion; Bertrand paradox; information; duopoly;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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