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Comparative Advertising in Markets with Network Externalities

  • Maria Alipranti

    ()

    (University of Crete)

  • Emmanuel Petrakis

    ()

    (Department of Economics, University of Crete, Greece)

The present paper investigates the firms' incentives to invest in comparative advertising in a spatially differentiated duopoly market characterized by network externalities. We show that for a wide range of locations, determined by the interaction between the transportation cost, the network effects and the effectiveness of advertising, firms have incentives to invest in comparative advertising with their investment levels to be positively related to the transportation cost and negatively related to the network effects. Further, comparing the equilibrium results of our model with the benchmark case without advertising activities and the case without network externalities, we show that the firms' location distance increases in the presence of network externalities, while it decreases in the presence of comparative advertising.

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File URL: http://economics.soc.uoc.gr/wpa/docs/Comparative_Advertising_in_Markets_with_Network_Externalitie_5_13.pdf
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Paper provided by University of Crete, Department of Economics in its series Working Papers with number 1306.

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Date of creation: 29 Aug 2012
Date of revision: 08 May 2013
Handle: RePEc:crt:wpaper:1306
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  1. IRMEN, Andreas & THISSE, Jacques-Francois, 1997. "Competition in multi-characteristics spaces: hotelling was almost right," CORE Discussion Papers 1997053, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  5. Claudio Piga & Joanna Poyago-Theotoky, 2003. "Endogenous R&D Spillovers and Locational Choice," CRIEFF Discussion Papers 0310, Centre for Research into Industry, Enterprise, Finance and the Firm.
  6. Anderson, Simon P & Ciliberto, Federico & Liaukonyte, Jura & Renault, Régis, 2012. "Push-Me Pull-You: Comparative Advertising in the OTC Analgesics Industry," CEPR Discussion Papers 8988, C.E.P.R. Discussion Papers.
  7. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
  8. Nicholas Economides, 1995. "The Economics of Networks," Working Papers 94-24, New York University, Leonard N. Stern School of Business, Department of Economics, revised Sep 1995.
  9. Grilo, Isabel & Shy, Oz & Thisse, Jacques-Francois, 2001. "Price competition when consumer behavior is characterized by conformity or vanity," Journal of Public Economics, Elsevier, vol. 80(3), pages 385-408, June.
  10. Shy,Oz, 2001. "The Economics of Network Industries," Cambridge Books, Cambridge University Press, number 9780521800952, November.
  11. Ivan Pastine & Tuvana Pastine, 2002. "Comsumption Externalities, Coordination, and Advertising," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(3), pages 919-943, August.
  12. Ivan Pastine & Tuvana Pastine, 2011. "Coordination In Markets With Consumption Externalities: Advertising And Product Quality," Manchester School, University of Manchester, vol. 79(1), pages 45-62, January.
  13. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-50, September.
  14. Kretschmer, Tobias & Rösner, Mariana, 2010. "Increasing Dominance - the Role of Advertising, Pricing and Product Design," Discussion Papers in Business Administration 11500, University of Munich, Munich School of Management.
  15. Maria Alipranti & Evangelos Mitrokostas & Emmanuel Petrakis, 2013. "Comparative versus Informative Advertising in Oligopolistic Markets," Working Papers 1301, University of Crete, Department of Economics.
  16. Anderson, Simon & Ciliberto, Federico & Liaukonyte, Jura, 2010. "Getting into Your Head(Ache): The Information Content of Advertising in the Over-the-Counter Analgesics Industry," MPRA Paper 24916, University Library of Munich, Germany.
  17. H. Leibenstein, 1950. "Bandwagon, Snob, and Veblen Effects in the Theory of Consumers' Demand," The Quarterly Journal of Economics, Oxford University Press, vol. 64(2), pages 183-207.
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