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Informative Advertising and Product Differentiation

  • Christou, Charalambos
  • Vettas, Nikolaos
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    We study informative advertising within a random-utility, non-localized competition model of product differentiation. In a symmetric equilibrium, advertisement is sub-optimal when product differentiation is small, and excessive otherwise. Increasing the number of firms may increase or decrease the market price. We emphasise that quasi-concavity of profits may fail, as firms may prefer a high price deviation, targeting consumers that only become informed about their product (a feature that, while present in earlier models of informative advertising, has not received enough attention). As product differentiation becomes small, a symmetric equilibrium does not exist.

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    Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3953.

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    Date of creation: Jun 2003
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    Handle: RePEc:cpr:ceprdp:3953
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    13. Butters, Gerard R, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 465-91, October.
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