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Informative Advertising and Consumer Search in a Differentiated-Products Duopoly

Author

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  • Levent Celik

Abstract

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.

Suggested Citation

  • Levent Celik, 2007. "Informative Advertising and Consumer Search in a Differentiated-Products Duopoly," CERGE-EI Working Papers wp332, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
  • Handle: RePEc:cer:papers:wp332
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    File URL: http://www.cerge-ei.cz/pdf/wp/Wp332.pdf
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    References listed on IDEAS

    as
    1. Gene M. Grossman & Carl Shapiro, 1984. "Informative Advertising with Differentiated Products," Review of Economic Studies, Oxford University Press, vol. 51(1), pages 63-81.
    2. Avinash Dixit & Victor Norman, 1978. "Advertising and Welfare," Bell Journal of Economics, The RAND Corporation, vol. 9(1), pages 1-17, Spring.
    3. Meurer, Michael & Stahl, Dale II, 1994. "Informative advertising and product match," International Journal of Industrial Organization, Elsevier, vol. 12(1), pages 1-19, March.
    4. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    5. 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.
    6. Gerard R. Butters, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 465-491.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Search; Duopoly; Informative Advertising; Product Differentiation.;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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