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Advertising and Consumer Search in a Duopoly Model

Author

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  • Maarten C.W. Janssen

    () (Faculty of Economics, Erasmus Universiteit Rotterdam)

  • Mariëlle C. Non

    () (Faculty of Economics, Erasmus Universiteit Rotterdam)

Abstract

We consider a duopoly in a homogenous goods market where part of the consumers are ex ante uninformed about prices. Information can come through two different channels: advertising and sequential consumer search. We arrive at the following results. First, there is no monotone relationship between prices and the degree of advertising. Second, advertising and search are “substitutes” for a large range of parameters. Third, when the cost of either search or advertising vanishes, the competitive outcome arises. Finally, both expected advertised and non-advertised prices are non-monotonic in search cost. One of the implications is that firms actually may benefit from consumers having low (rather than high) search costs. This discussion paper has resulted in a publication in International Journal of Industrial Organization , 2008, 26(1), 354-71.

Suggested Citation

  • Maarten C.W. Janssen & Mariëlle C. Non, 2005. "Advertising and Consumer Search in a Duopoly Model," Tinbergen Institute Discussion Papers 05-022/1, Tinbergen Institute.
  • Handle: RePEc:tin:wpaper:20050022
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    References listed on IDEAS

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    1. Janssen, Maarten C.W. & Non, Marielle C., 2008. "Advertising and consumer search in a duopoly model," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 354-371, January.
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    5. Maarten C.W. Janssen & Jose Luis Moraga-Gonzalez & Matthijs R. Wildenbeest, 2004. "A Note on Costly Sequential Search and Oligopoly Pricing," Tinbergen Institute Discussion Papers 04-068/1, Tinbergen Institute.
    6. Moraga-González, José Luis & Wildenbeest, Matthijs R., 2008. "Maximum likelihood estimation of search costs," European Economic Review, Elsevier, vol. 52(5), pages 820-848, July.
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    10. Cason, Timothy N. & Datta, Shakun, 2006. "An experimental study of price dispersion in an optimal search model with advertising," International Journal of Industrial Organization, Elsevier, vol. 24(3), pages 639-665, May.
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    12. Gerard R. Butters, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 465-491.
    13. 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.
    14. Stahl, Dale O, II, 1989. "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, American Economic Association, vol. 79(4), pages 700-712, September.
    15. Janssen, Maarten C.W. & Moraga-Gonzalez, Jose Luis & Wildenbeest, Matthijs R., 2005. "Truly costly sequential search and oligopolistic pricing," International Journal of Industrial Organization, Elsevier, vol. 23(5-6), pages 451-466, June.
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    Citations

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    Cited by:

    1. McCarthy, Ian M., 2016. "Advertising intensity and welfare in an equilibrium search model," Economics Letters, Elsevier, vol. 141(C), pages 20-26.
    2. Dmitry Ryvkin & Danila Serra, 2015. "Is more competition always better? An experimental study of extortionary corruption," Working Papers wp2015_10_01, Department of Economics, Florida State University.
    3. Sandro Shelegia & Chris M Wilson, 2014. "A Utility-Based Model of Sales with Informative Advertising," Discussion Paper Series 2014_09, Department of Economics, Loughborough University, revised Oct 2014.
    4. Wilson, Chris M., 2010. "Ordered search and equilibrium obfuscation," International Journal of Industrial Organization, Elsevier, vol. 28(5), pages 496-506, September.
    5. Muck, Johannes, 2016. "Tariff-mediated network effects with incompletely informed consumers," DICE Discussion Papers 210, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    6. Janssen, Maarten C.W. & Non, Marielle C., 2008. "Advertising and consumer search in a duopoly model," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 354-371, January.
    7. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107069978.
    8. Obradovits, Martin, 2015. "Going to the Discounter: Consumer Search with Local Market Heterogeneities," MPRA Paper 66613, University Library of Munich, Germany.
    9. Stühmeier Torben, 2015. "Price Disclosure Rules and Consumer Price Comparison," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(2), pages 815-835, April.
    10. Maarten C. W. Janssen & Marielle C. Non, 2009. "Going Where the Ad Leads You: On High Advertised Prices and Searching Where to Buy," Marketing Science, INFORMS, vol. 28(1), pages 87-98, 01-02.
    11. Ruth G. Gilgenbach, 2009. "On Polarized Prices and Costly Sequential Search," Departmental Working Papers 0907, Southern Methodist University, Department of Economics.
    12. Chris M. Wilson, 2008. "Ordered Search and Equilibrium Obfuscation," Economics Series Working Papers 401, University of Oxford, Department of Economics.
    13. Wang, Chengsi, 2011. "Informative Advertising, Consumer Search and Transparency Policy," MPRA Paper 34977, University Library of Munich, Germany.
    14. repec:smu:ecowpa:1301 is not listed on IDEAS
    15. Ian McCarthy, 2008. "Simulating Sequential Search Models with Genetic Algorithms: Analysis of Price Ceilings, Taxes, Advertising and Welfare," Caepr Working Papers 2008-010, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
    16. Fershtman, Chaim & Fishman, Arthur & Zhou, Jidong, 2013. "Search and Categorization," MPRA Paper 53166, University Library of Munich, Germany.

    More about this item

    Keywords

    consumer search; advertising; price dispersion;

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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