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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
    Date of revision:
    Handle: RePEc:cpr:ceprdp:3953
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    5. Baye, M.R. & Kovenock, D., 1990. "How To Sell a Pickup Truck : "Beat-or-Pay" Advertisements as Facilitating Devices," Discussion Paper 1990-53, Tilburg University, Center for Economic Research.
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    9. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Econometrica, Econometric Society, vol. 59(1), pages 25-59, January.
    10. repec:oup:qjecon:v:101:y:1986:i:3:p:493-511 is not listed on IDEAS
    11. Kihlstrom, Richard E & Riordan, Michael H, 1984. "Advertising as a Signal," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 427-50, June.
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    13. Meurer, Michael & Stahl, Dale II, 1994. "Informative advertising and product match," International Journal of Industrial Organization, Elsevier, vol. 12(1), pages 1-19, March.
    14. repec:oup:restud:v:52:y:1985:i:1:p:107-20 is not listed on IDEAS
    15. Bagwell, Kyle & Ramey, Garey, 1994. "Coordination Economies, Advertising, and Search Behavior in Retail Markets," American Economic Review, American Economic Association, vol. 84(3), pages 498-517, June.
    16. 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.
    17. Bester, Helmut & Petrakis, Emmanuel, 1995. "Price competition and advertising in oligopoly," European Economic Review, Elsevier, vol. 39(6), pages 1075-1088, June.
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