IDEAS home Printed from https://ideas.repec.org/p/hhs/osloec/1996_001.html
   My bibliography  Save this paper

Persuasive Advertising and Product Differentiation

Author

Listed:
  • Von der Fehr, N.H.M.
  • Stevik, K.

Abstract

In a Hotelling-type differentiated-products duopoly model we distinguish between three alternative ways that persuasive advertising may affect consumer perferences. We illustrate the implications of our theory - an contrast with results from models of informative advertising - by analysing the relationship between the degree of product differentiation and equilibrium levels of advertising. The analysis suggests that an positive relationship between equilibrium levels of advertising and (inherent) product substitutability is consistent only with advertising that 'increases perceived product differences'.

Suggested Citation

  • Von der Fehr, N.H.M. & Stevik, K., 1996. "Persuasive Advertising and Product Differentiation," Memorandum 1996_001, Oslo University, Department of Economics.
  • Handle: RePEc:hhs:osloec:1996_001
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bester, Helmut & Petrakis, Emmanuel, 1995. "Price competition and advertising in oligopoly," European Economic Review, Elsevier, vol. 39(6), pages 1075-1088, June.
    2. Gary S. Becker & Kevin M. Murphy, 1993. "A Simple Theory of Advertising as a Good or Bad," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(4), pages 941-964.
    3. Schmalensee, Richard, 1978. "A Model of Advertising and Product Quality," Journal of Political Economy, University of Chicago Press, vol. 86(3), pages 485-503, June.
    4. Avinash Dixit & Victor Norman, 1980. "Advertising and Welfare: Another Reply," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 753-754, Autumn.
    5. Nichols, Len M, 1985. "Advertising and Economic Welfare," American Economic Review, American Economic Association, vol. 75(1), pages 213-218, March.
    6. Gene M. Grossman & Carl Shapiro, 1984. "Informative Advertising with Differentiated Products," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(1), pages 63-81.
    7. Akerlof, George A & Dickens, William T, 1982. "The Economic Consequences of Cognitive Dissonance," American Economic Review, American Economic Association, vol. 72(3), pages 307-319, June.
    8. Avinash Dixit & Victor Norman, 1978. "Advertising and Welfare," Bell Journal of Economics, The RAND Corporation, vol. 9(1), pages 1-17, Spring.
    9. Asher Wolinsky, 1984. "Product Differentiation with Imperfect Information," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(1), pages 53-61.
    10. Bagwell, Kyle & Ramey, Garey, 1993. "Advertising as Information: Matching Products to Buyers," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 2(2), pages 199-243, Summer.
    11. Meurer, Michael & Stahl, Dale II, 1994. "Informative advertising and product match," International Journal of Industrial Organization, Elsevier, vol. 12(1), pages 1-19, March.
    12. Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 796-821, August.
    13. repec:bla:jemstr:v:2:y:1993:i:2:p:199-243:a is not listed on IDEAS
    14. Nagler, Matthew G., 1993. "Rather bait than switch : Deceptive advertising with bounded consumer rationality," Journal of Public Economics, Elsevier, vol. 51(3), pages 359-378, July.
    15. Carl Shapiro, 1980. "Advertising and Welfare: Comment," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 749-752, Autumn.
    16. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-1150, September.
    17. Franklin M. Fisher & John J. McGowan, 1979. "Advertising and Welfare: Comment," Bell Journal of Economics, The RAND Corporation, vol. 10(2), pages 726-727, Autumn.
    18. Economides, Nicholas, 1986. "Minimal and maximal product differentiation in Hotelling's duopoly," Economics Letters, Elsevier, vol. 21(1), pages 67-71.
    19. Unknown, 1986. "Letters," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 1(4), pages 1-9.
    20. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
    21. Kihlstrom, Richard E & Riordan, Michael H, 1984. "Advertising as a Signal," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 427-450, June.
    22. Yehuda Kotowitz & Frank Mathewson, 1979. "Advertising, Consumer Information, and Product Quality," Bell Journal of Economics, The RAND Corporation, vol. 10(2), pages 566-588, Autumn.
    23. Nelson, Philip, 1974. "Advertising as Information," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 729-754, July/Aug..
    24. Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-122, February.
    25. Gerard R. Butters, 1977. "Equilibrium Distributions of Sales and Advertising Prices," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 465-491.
    26. Stigler, George J & Becker, Gary S, 1977. "De Gustibus Non Est Disputandum," American Economic Review, American Economic Association, vol. 67(2), pages 76-90, March.
    27. Robert, Jacques & Stahl, Dale O, II, 1993. "Informative Price Advertising in a Sequential Search Model," Econometrica, Econometric Society, vol. 61(3), pages 657-686, May.
    28. Avinash Dixit & Victor D. Norman, 1979. "Advertising and Welfare: Reply," Bell Journal of Economics, The RAND Corporation, vol. 10(2), pages 728-729, Autumn.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yan, Yingchen & Zhao, Qiuhong & Qin, Zhongfeng & Sun, Gaoji, 2022. "Integration of development and advertising strategies for multi-attribute products under competition," European Journal of Operational Research, Elsevier, vol. 300(2), pages 490-503.
    2. de Frutos, Maria-Angeles & Ornaghi, Carmine & Siotis, Georges, 2013. "Competition in the pharmaceutical industry: How do quality differences shape advertising strategies?," Journal of Health Economics, Elsevier, vol. 32(1), pages 268-285.
    3. Andrea Mantovani & Giordano Mion, 2006. "Advertising and endogenous exit in a differentiated duopoly," Recherches économiques de Louvain, De Boeck Université, vol. 72(1), pages 19-48.
    4. Uwe Dulleck & Paul Frijters & Konrad Podczeck, 2006. "All-pay auctions with budget constraints and fair insurance," Economics working papers 2006-13, Department of Economics, Johannes Kepler University Linz, Austria.
    5. Victor Tremblay & Stephen Polasky, 2002. "Advertising with Subjective Horizontal and Vertical Product Differentiation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 20(3), pages 253-265, May.
    6. Buehler, Stefan & Halbheer, Daniel, 2012. "Persuading consumers with social attitudes," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 439-450.
    7. Young Hou & Dennis Yao, 2022. "Pushed into a crowd: Repositioning costs, resources, and competition in the RTE cereal industry," Strategic Management Journal, Wiley Blackwell, vol. 43(1), pages 3-29, January.
    8. Degryse, Hans & Irmen, Andreas, 2001. "Attribute dependence and the provision of quality," Regional Science and Urban Economics, Elsevier, vol. 31(5), pages 547-569, September.
    9. Uwe Dulleck & Paul Frijters & Konrad Podczeck, 2006. "All-pay auctions with budget constraints and fair insurance," Economics working papers 2006-13, Department of Economics, Johannes Kepler University Linz, Austria.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wang, Shinn-Shyr & Stiegert, Kyle W., 2006. "The Duopolistic Firm with Endogenous Risk Control: Case of Persuasive Advertising and Product Differentiation," Staff Paper Series 496, University of Wisconsin, Agricultural and Applied Economics.
    2. David A. Soberman, 2004. "Research Note: Additional Learning and Implications on the Role of Informative Advertising," Management Science, INFORMS, vol. 50(12), pages 1744-1750, December.
    3. Soberman, David A. & Xiang, Yi, 2022. "Designing the content of advertising in a differentiated market," International Journal of Research in Marketing, Elsevier, vol. 39(1), pages 190-211.
    4. Wang, Shinn-Shyr & Stiegert, Kyle W., 2006. "The Duopolistic Firm with Endogenous Risk Control: Case of Persuasive Advertising and Product Differentiation," Staff Papers 12606, University of Wisconsin-Madison, Department of Agricultural and Applied Economics.
    5. Azamat Valei, 2017. "Advertising Response to New Entry," CERGE-EI Working Papers wp588, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    6. Lola Esteban & José M. Hernández & José Luis Moraga‐González, 2006. "Customer Directed Advertising and Product Quality," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(4), pages 943-968, December.
    7. Justin P. Johnson & David P. Myatt, 2006. "On the Simple Economics of Advertising, Marketing, and Product Design," American Economic Review, American Economic Association, vol. 96(3), pages 756-784, June.
    8. Anderson, Simon P. & Gabszewicz, Jean J., 2006. "The Media and Advertising: A Tale of Two-Sided Markets," Handbook of the Economics of Art and Culture, in: V.A. Ginsburgh & D. Throsby (ed.), Handbook of the Economics of Art and Culture, edition 1, volume 1, chapter 18, pages 567-614, Elsevier.
    9. Simon P. Anderson & Régis Renault, 2006. "Advertising Content," American Economic Review, American Economic Association, vol. 96(1), pages 93-113, March.
    10. McCarthy, Ian M., 2016. "Advertising intensity and welfare in an equilibrium search model," Economics Letters, Elsevier, vol. 141(C), pages 20-26.
    11. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107069978.
    12. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899.
    13. Ulrich Doraszelski & Sarit Markovich, 2007. "Advertising dynamics and competitive advantage," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 557-592, September.
    14. Salvatore Piccolo & Piero Tedeschi & Giovanni Ursino, 2018. "Deceptive Advertising with Rational Buyers," Management Science, INFORMS, vol. 64(3), pages 1291-1310, March.
    15. Ivan Pastine & Tuvana Pastine, 2000. "Coordination in Markets with Consumption Externalities : The Role of Advertising and Product Quality," Working Papers 0003, Department of Economics, Bilkent University.
    16. Whelan Adele, 2019. "Entry Deterrence, Coordinating Advertising and Pricing in Markets with Consumption Externalities," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 19(2), pages 1-16, June.
    17. Nick Vikander, 2011. "Targeted Advertising and Social Status," Tinbergen Institute Discussion Papers 11-016/1, Tinbergen Institute.
    18. Christou, C. & Vettas, N., 2008. "On informative advertising and product differentiation," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 92-112, January.
    19. Régis Chenavaz & Sajjad M. Jasimuddin, 2017. "An analytical model of the relationship between product quality and advertising," Post-Print hal-01685892, HAL.
    20. Rauch, Ferdinand, 2013. "Advertising expenditure and consumer prices," International Journal of Industrial Organization, Elsevier, vol. 31(4), pages 331-341.

    More about this item

    Keywords

    DUOPOLIES; PRODUCTION; ADVERTISING;
    All these keywords.

    JEL classification:

    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:osloec:1996_001. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mari Strønstad Øverås (email available below). General contact details of provider: https://edirc.repec.org/data/souiono.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.