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A Simple Model of Informative Advertising

Author

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  • Paulo Guimaraes

    (University of Minho, Portugal)

Abstract

This paper presents an oligopolistic model of informative advertising, where firms simultaneously choose prices and advertising intensities. For this game there is a dispersed price equilibrium in which the amount of advertising by each firm is socially optimal. The advertising technology considered is more general than in Butters, however his results can be obtained as the number of firms tends to infinity. For some advertising technologies entry leads to a market contraction; we can also observe situations where increases in advertising costs lead to higher profits. This model can be used as a "benchmark" against which other models of informative advertising can be compared.

Suggested Citation

  • Paulo Guimaraes, 1995. "A Simple Model of Informative Advertising," Industrial Organization 9508003, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpio:9508003
    Note: 17 pages, WP 5.1 for DOS, formatted for HP 4L
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    References listed on IDEAS

    as
    1. Steven Salop & Joseph Stiglitz, 1977. "Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 493-510.
    2. Nicholas Kaldor, 1950. "The Economic Aspects of Advertising," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 18(1), pages 1-27.
    3. Rothschild, Michael, 1973. "Models of Market Organization with Imperfect Information: A Survey," Journal of Political Economy, University of Chicago Press, vol. 81(6), pages 1283-1308, Nov.-Dec..
    4. Louis L. Wilde & Alan Schwartz, 1979. "Equilibrium Comparison Shopping," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 46(3), pages 543-553.
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