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Assisted Self-Persuasion: Advertising with Consumer Adjustment to Choice

Author

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  • Matthew G. Nagler

    () (Ph.D. Program in Economics, Graduate Center, and Department of Economics and Business, City College of New York)

Abstract

I develop a new theory of persuasive advertising in which consumers rationally adjust to (i.e., improve their attitude toward) the products they choose and advertising facilitates adjustment. Advertisings price effects depend on whether marginal or inframarginal consumers are most heavily targeted, consistent with the literature. But they also depend on advertisings role as an overall adjustment intensifier, whence variation in the cost of adjustment with the strength of the consumers initial product preference determines the equilibrium price level. Whether too much or too little advertising is provided in equilibrium depends on the sign and size of advertisings price effect, the relative density of marginal consumers, and the relative extent to which advertisings adjustment cost reductions benefit marginal consumers.

Suggested Citation

  • Matthew G. Nagler, 2017. "Assisted Self-Persuasion: Advertising with Consumer Adjustment to Choice," Working Papers 14, City University of New York Graduate Center, Ph.D. Program in Economics.
  • Handle: RePEc:cgc:wpaper:014
    as

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    File URL: http://wfs.gc.cuny.edu/Economics/RePEc/cgc/wpaper/CUNYGC-WP014.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Xavier Gabaix & David Laibson, 2018. "Shrouded attributes, consumer myopia and information suppression in competitive markets," Chapters,in: Handbook of Behavioral Industrial Organization, chapter 3, pages 40-74 Edward Elgar Publishing.
    3. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Econometrica, Econometric Society, vol. 59(1), pages 25-59, January.
    4. Nelson, Philip, 1974. "Advertising as Information," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 729-754, July/Aug..
    5. Barbara J. Phillips & Edward F. McQuarrie, 2010. "Narrative and Persuasion in Fashion Advertising," Journal of Consumer Research, Oxford University Press, vol. 37(3), pages 368-392, October.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Persuasive advertising; Hotelling model; consumer decision-making; pricing; welfare;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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