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The advertising mix for a search good

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  • S. Anderson
  • Régis Renault

    (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université)

Abstract

We extend the persuasion game to bring it squarely into the economics of advertising. We model advertising as exciting consumer interest into learning more about the product, and determine a firm's equilibrium choice of advertising content over quality information, price information, and horizontal match information. Equilibrium is unique whenever advertising is necessary. The outcome is a separating equilibrium with quality unravelling. Lower quality firms need to provide more information. For a given quality level, as a function of consumer visit costs, first quality information is disclosed, then price information and then horizontal product information are added to the advertising mix. Some suggestive evidence is provided from airline ads in newspapers.
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Suggested Citation

  • S. Anderson & Régis Renault, 2012. "The advertising mix for a search good," Post-Print hal-02978391, HAL.
    • Handle: RePEc:hal:journl:hal-02978391
    DOI: 10.1287/mnsc.1120.1575
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    Cited by:

    1. Shi, Hongyan & Liu, Yunchuan & Petruzzi, Nicholas C., 2019. "Informative advertising in a distribution channel," European Journal of Operational Research, Elsevier, vol. 274(2), pages 773-787.
    2. Pedro M. Gardete & Liang Guo, 2021. "Prepurchase Information Acquisition and Credible Advertising," Management Science, INFORMS, vol. 67(3), pages 1696-1717, March.
    3. Florian Morath & Johannes Münster, 2018. "Online Shopping and Platform Design with Ex Ante Registration Requirements," Management Science, INFORMS, vol. 64(1), pages 360-380, January.
    4. Wu, Lingli & Deng, Shiming & Jiang, Xuan, 2018. "Sampling and pricing strategy under competition," Omega, Elsevier, vol. 80(C), pages 192-208.
    5. Levent Celik, 2014. "Information Unraveling Revisited: Disclosure of Horizontal Attributes," Journal of Industrial Economics, Wiley Blackwell, vol. 62(1), pages 113-136, March.
    6. Brett R Gordon & Kinshuk Jerath & Zsolt Katona & Sridhar Narayanan & Jiwoong Shin & Kenneth C Wilbur, 2019. "Inefficiencies in Digital Advertising Markets," Papers 1912.09012, arXiv.org, revised Feb 2020.
    7. Jianqiang Zhang & Krista J. Li, 2021. "Quality Disclosure Under Consumer Loss Aversion," Management Science, INFORMS, vol. 67(8), pages 5052-5069, August.
    8. Honka, Elisabeth & Seiler, Stephan & Ursu, Raluca, 2024. "Consumer search: What can we learn from pre-purchase data?," Journal of Retailing, Elsevier, vol. 100(1), pages 114-129.
    9. Roberto Burguet & Vaiva Petrikaite, 2017. "Targeted Advertising and Costly Consumer Search," Working Papers 971, Barcelona School of Economics.
    10. Bikram P. Ghosh & Michael R. Galbreth, 2023. "The weight of the crowd, social information credibility, and firm strategy," Production and Operations Management, Production and Operations Management Society, vol. 32(4), pages 1079-1095, April.
    11. Pedro M. Gardete, 2013. "Cheap-Talk Advertising and Misrepresentation in Vertically Differentiated Markets," Marketing Science, INFORMS, vol. 32(4), pages 609-621, July.
    12. Ennio Bilancini & Leonardo Boncinelli, 2021. "When market unraveling fails and mandatory disclosure backfires: Persuasion games with labeling and costly information acquisition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 30(3), pages 585-599, August.
    13. Lyu, Chen, 2023. "Information design for selling search goods and the effect of competition," Journal of Economic Theory, Elsevier, vol. 213(C).

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    More about this item

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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