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A Simple Model of Informative Advertising


  • Paulo Guimaraes

    (University of Minho, Portugal)


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, EconWPA.
  • 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

    1. Steven Salop & Joseph Stiglitz, 1977. "Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 493-510.
    2. Wilde, Louis L. & Schwartz, Alan., "undated". "Equilibrium Comparison Shopping," Working Papers 184, California Institute of Technology, Division of the Humanities and Social Sciences.
    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," Review of Economic Studies, Oxford University Press, vol. 46(3), pages 543-553.
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    JEL classification:

    • L - Industrial Organization


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