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Advertising for attention in a consumer search model

  • Haan, Marco A.

    ()

    (University of Groningen)

  • Moraga-Gonzalez, Jose L.

    (University of Groningen)

We model the idea that when consumers search for products, they first visit the firm whose advertising is more salient. The gains a firm derives from being visited early increase in search costs, so equilibrium advertising increases as search costs rise. This may result in lower firm profits when search costs increase. We extend the basic model by allowing for firm heterogeneity in advertising costs. Firms whose advertising is more salient and therefore raise attention more easily charge lower prices in equilibrium and obtain higher profits. As advertising cost asymmetries increase, aggregate profits increase, advertising falls and welfare increases.

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Paper provided by IESE Business School in its series IESE Research Papers with number D/794.

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Length: 43 pages
Date of creation: 03 May 2009
Date of revision:
Handle: RePEc:ebg:iesewp:d-0794
Contact details of provider: Postal: IESE Business School, Av Pearson 21, 08034 Barcelona, SPAIN
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