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On the Simple Economics of Advertising, Marketing, and Product Design

  • David P. Myatt
  • Justin P. Johnson

We propose a framework for analyzing transformations of demand. Such transformations frequently stem from changes in the dispersion of consumers` valuations, which lead to rotations of the demand curve. In a wide variety of settings, profits are a U-shaped function of dispersion. A high level of dispersion is complemented by a niche posture, and low dispersion is complemented by a mass-market posture. We investigate numerous applications of our framework, including product design; advertising, marketing and sales advice; and the construction of quality-differentiated product lines. We also suggest a new taxonomy of advertising, distinguishing between hype, which shifts demand, and real information, which rotates demand.

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File URL: http://www.economics.ox.ac.uk/materials/working_papers/paper185.pdf
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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 185.

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Date of creation: 01 Nov 2004
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Handle: RePEc:oxf:wpaper:185
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