Advertising and Conspicuous Consumption
The paper formalizes the intuition that brands are consumed for image reasons and that advertising creates a brandâ€™s image. The key idea is that advertising informs the public of brand names and creates the possibility of conspicuous consumption by rendering brands a signalling device. In a price competition framework, we show that advertising increases consumersâ€™ willingness to pay and thus provide a foundation, based on optimization behavior, for persuasive approaches to advertising. Moreover, an incumbent might strategically overinvest in advertising to deter entry, there might be too much advertising, and competition might be socially undesirable.
|Date of creation:||Aug 2005|
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- Schmalensee, Richard, 1983. "Advertising and Entry Deterrence: An Exploratory Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 636-653, August. Full references (including those not matched with items on IDEAS)
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