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|
|Date of revision:|
|Contact details of provider:|| Postal: Geschwister-Scholl-Platz 1, D-80539 Munich, Germany|
Web page: http://www.sfbtr15.de/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Solomon, Michael R, 1983. " The Role of Products as Social Stimuli: A Symbolic Interactionism Perspective," Journal of Consumer Research, Oxford University Press, vol. 10(3), pages 319-29, December.
- Bernheim, B Douglas, 1994. "A Theory of Conformity," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 841-77, October.
- In-Koo Cho & David M. Kreps, 1997.
"Signaling Games and Stable Equilibria,"
Levine's Working Paper Archive
896, David K. Levine.
- Gerard R. Butters, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 465-491.
- Bagwell, Kyle & Ramey, Garey, 1990. "Advertising and pricing to deter or accommodate entry when demand is unknown," International Journal of Industrial Organization, Elsevier, vol. 8(1), pages 93-113.
- Corneo, Giacomo & Jeanne, Olivier, 1997. "Conspicuous consumption, snobbism and conformism," Journal of Public Economics, Elsevier, vol. 66(1), pages 55-71, October.
- Nelson, Philip, 1974. "Advertising as Information," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 729-54, July/Aug..
- KOHLBERG, Elon & MERTENS, Jean-François, .
"On the strategic stability of equilibria,"
CORE Discussion Papers RP
716, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Paul R. Milgrom & John Roberts, 1984.
"Price and Advertising Signals of Product Quality,"
Cowles Foundation Discussion Papers
709, Cowles Foundation for Research in Economics, Yale University.
- Pesendorfer, Wolfgang, 1995.
"Design Innovation and Fashion Cycles,"
American Economic Review,
American Economic Association, vol. 85(4), pages 771-92, September.
- Bagwell, Laurie Simon & Bernheim, B Douglas, 1996. "Veblen Effects in a Theory of Conspicuous Consumption," American Economic Review, American Economic Association, vol. 86(3), pages 349-73, June.
- Belk, Russell W, 1988. " Possessions and the Extended Self," Journal of Consumer Research, Oxford University Press, vol. 15(2), pages 139-68, September.
- Bagwell, Kyle, 2007. "The Economic Analysis of Advertising," Handbook of Industrial Organization, Elsevier.
- McCracken, Grant, 1989. " Who Is the Celebrity Endorser? Cultural Foundations of the Endorsement Process," Journal of Consumer Research, Oxford University Press, vol. 16(3), pages 310-21, December.
- Richins, Marsha L, 1994. " Special Possessions and the Expression of Material Values," Journal of Consumer Research, Oxford University Press, vol. 21(3), pages 522-33, December.
- Fudenberg, Drew & Tirole, Jean, 1984. "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review, American Economic Association, vol. 74(2), pages 361-66, May.
- Schmalensee, Richard, 1983. "Advertising and Entry Deterrence: An Exploratory Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 636-53, August.
- Coelho, Philip R P & McClure, James E, 1993. "Toward an Economic Theory of Fashion," Economic Inquiry, Western Economic Association International, vol. 31(4), pages 595-608, October.
- Ishigaki, Hiroaki, 2000. "Informative advertising and entry deterrence: a Bertrand model," Economics Letters, Elsevier, vol. 67(3), pages 337-343, June.
When requesting a correction, please mention this item's handle: RePEc:trf:wpaper:72. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tamilla Benkelberg)
If references are entirely missing, you can add them using this form.