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Advertising Claims, Pricing, and Customer Evidence

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  • Joshua S. Gans

Abstract

Why might firms make different claims in advertising both with respect to themselves and to rivals? I study how claims direct consumers to different customer experiences, and how prices change the available evidence. Attributing successes to the advertiser requires a low price when its product is superior; attributing failures to the rival supports a higher price. Focussing on a single strategic advertiser, the model shows that the claim that attracts the most customers to a superior product never maximises profit. The optimal campaign raises advertiser profit but lowers consumer surplus relative to fully informed choice, and reduces total welfare whenever product reliabilities differ. When both firms choose claims and prices, competition can sustain a mix of positive and negative claims with price dispersion, restoring claims that a lone advertiser would reject. A rival's pricing response alone can make failure attribution optimal by weakening incentives to undercut. Allowing the rival to advertise can lower both prices and shift customers towards it if the incumbent retains its previous claim; allowing the incumbent to change its claim can eliminate this additional effect. Advertising, therefore, changes not only persuasion but also pricing incentives, making its market consequences different from its effects at fixed prices.

Suggested Citation

  • Joshua S. Gans, 2026. "Advertising Claims, Pricing, and Customer Evidence," NBER Working Papers 35770, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:35770
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    More about this item

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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