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Upstream Pricing and Advertising Signal Downstream Demand

Author

Listed:
  • Albaek, S.
  • Overgaard, P.B.

Abstract

This paper considers price and advertising decisions by a monopolist manufacturer who is privately informed about the strength of consumer demand. Consumers respond to advertising and to the retail price chosen by an uninformed retailer on the basis of his beliefs about demand. This signaling game has a unique intuitive equilibrium outcome in which a high-demand manufacturer chooses his full-information pair of wholesale price and advertising. When demand is low, the wholesale price is distorted downward from its full information level, whereas demand-enhancing advertising may be distorted in either direction. Dissipative advertising is not distorted because it is never used. Copyright 1992 by MIT Press.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Albaek, S. & Overgaard, P.B., 1992. "Upstream Pricing and Advertising Signal Downstream Demand," Papers 9209, Tilburg - Center for Economic Research.
  • Handle: RePEc:fth:tilbur:9209
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    Cited by:

    1. Kyle Bagwell, 2007. "Signalling and entry deterrence: a multidimensional analysis," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 670-697, September.
    2. Albaek, Svend & Overgaard, Per Baltzer, 1998. "Receiver discretion in signalling models: Information transmission to competing retailers," International Journal of Industrial Organization, Elsevier, vol. 16(2), pages 209-228, March.
    3. Alex Barrachina & Yair Tauman & Amparo Urbano Salvador, 2014. "Entry with Two Correlated Signals," Discussion Papers in Economic Behaviour 0714, University of Valencia, ERI-CES.

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