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Comparative Advertising: The role of prices

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  • Baumann, Stuart

Abstract

In markets where firms sell similar goods to their competitors, firms may be able to free-ride off the costly price signalling of competitor firms by engaging in price comparative advertising. As the goods are similar, consumers can reason that if one good is high quality (revealed through price signalling) then so is the other. This paper models this phenomenon and finds that in equilibrium there will be firms price signalling as well as freeriding firms that signal through price comparative advertising. Welfare is strictly higher in markets where advertising firms are active relative to pure price signalling markets. In some cases advertising markets can be even more efficient than full information markets as advertisers surrender market power to avoid costly price signalling.

Suggested Citation

  • Baumann, Stuart, 2017. "Comparative Advertising: The role of prices," MPRA Paper 79872, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:79872
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    References listed on IDEAS

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    More about this item

    Keywords

    Comparative advertising; Price Signalling;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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