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Dynamic informative advertising of new experience goods:

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  • Saak, Alexander E.

Abstract

This paper analyzes the optimal advertising and price policies of a monopolist who sells a new experience good over time to a population of heterogeneous forward-looking buyers. We consider informative advertising that can complement or substitute for learning-by-purchasing, and show that the advertising intensity always peaks during the early stages when the price extracts surplus from the buyers who are yet to learn their valuation for the good. We also show that even though informative advertising may temporarily raise prices and slow down the learning process, an advertising ban can reduce welfare.
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Suggested Citation

  • Saak, Alexander E., 2011. "Dynamic informative advertising of new experience goods:," IFPRI discussion papers 1062, International Food Policy Research Institute (IFPRI).
    • Handle: RePEc:fpr:ifprid:1062
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    File URL: http://www.ifpri.org/sites/default/files/publications/ifpridp01062.pdf
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    References listed on IDEAS

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    Cited by:

    1. Celik, Levent, 2016. "Competitive provision of tune-ins under common private information," International Journal of Industrial Organization, Elsevier, vol. 44(C), pages 113-122.
    2. Schumacher, Heiner, 2014. "Incentives through consumer learning about tastes," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 170-177.
    3. Ayca Kaya, 2013. "Dynamics of price and advertising as quality signals: anything goes," Economics Bulletin, AccessEcon, vol. 33(2), pages 1556-1564.

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    Keywords

    Advertising; experience goods; Learning; monopoly; private information;
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