Informative Advertising and Consumer Search in a Differentiated-Products Duopoly
This paper analyzes informative advertising in a duopoly market with differentiated products when consumer search is costless. If consumers are fully rational, exposure to a single advertisement is sufficient for them to obtain complete market information. In this case, firms undersupply advertising compared to the social optimum because of free-riding. If consumers are not fully rational, they may ignore the existence of another firm when the only advertisement they receive quotes the monopoly price. In this case, both firms advertise the monopoly price, and the market may produce too much or too little advertising compared to the social optimum.
|Date of creation:||Jul 2007|
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- Hamilton, Stephen F., 2004. "Informative Advertising in Concentrated, Differentiated Markets," Working Papers 201546, University of Wisconsin-Madison, Department of Agricultural and Applied Economics, Food System Research Group.
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- Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
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