"We sold a million copies" - The Role of Advertising Past Sales
We model a two period monopoly market with two-sided quality uncertainty. In first period, seller gathers information about consumers´ tastes upon observing its sales. In second period, seller may or may not deliver the information. If monopolist must commit either to reveal or conceal past-sales before observing them, committing to reveal is the dominant strategy whenever advertising cost is low, buyers are many and their private information is accurate. When seller can postpone advertising decision and gains experience, past-sales revelation occurs partially. In equilibrium, delivery of sales-data occurs to induce some buyers´ herding behaviour. We carry out the analysis for two different informational scenarios.
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"High and Declining Prices Signal Product Quality,"
808, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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"A theory of Fads, Fashion, Custom and cultural change as informational Cascades,"
Levine's Working Paper Archive
1193, David K. Levine.
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- Paul R. Milgrom & John Roberts, 1984.
"Price and Advertising Signals of Product Quality,"
Cowles Foundation Discussion Papers
709, Cowles Foundation for Research in Economics, Yale University.
- Vives, Xavier, 1984. "Duopoly information equilibrium: Cournot and bertrand," Journal of Economic Theory, Elsevier, vol. 34(1), pages 71-94, October.
- Asher Wolinsky, 1983. "Prices as Signals of Product Quality," Review of Economic Studies, Oxford University Press, vol. 50(4), pages 647-658.
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