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``We sold a million copies''-The role of advertising past sales

  • P. K. Monteiro

    (IMPA & Copenhagen University)

  • J. L. Moraga

    (Copenhagen University)

We model a two periods market with two-sided quality uncertainty. In the first period the seller gathers information about consumers' tastes upon observing his sales. In the second period the seller may or may not deliver the information. If the monopolist must commit either to reveal or conceal past-sales before observing them, commiting to reveal is the dominant strategy whenever advertising cost is low, buyers are many and their private information is accurate. When the seller can postpone the advertising decision and gains experience, past-sales revelation occurs partially. In equilibrium, delivery of sales-data occurs to induce some buyers' herding behaviour. We carry out the analysis for two different informational scenarios.

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Paper provided by EconWPA in its series Industrial Organization with number 9812001.

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Length: 20 pages
Date of creation: 08 Dec 1998
Date of revision:
Handle: RePEc:wpa:wuwpio:9812001
Note: Type of Document - Postscript file; prepared on IBM PC - PC- TEX/Latex; to print on HP/PostScript/; pages: 20 ; figures: request from author/
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  1. Gal-Or, Esther, 1985. "Information Sharing in Oligopoly," Econometrica, Econometric Society, vol. 53(2), pages 329-43, March.
  2. Judd, Kenneth L & Riordan, Michael H, 1994. "Price and Quality in a New Product Monopoly," Review of Economic Studies, Wiley Blackwell, vol. 61(4), pages 773-89, October.
  3. Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 796-821, August.
  4. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
  5. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
  6. Bagwell, Kyle & Riordan, Michael H, 1991. "High and Declining Prices Signal Product Quality," American Economic Review, American Economic Association, vol. 81(1), pages 224-39, March.
  7. Nelson, Philip, 1974. "Advertising as Information," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 729-54, July/Aug..
  8. Vives, Xavier, 1984. "Duopoly information equilibrium: Cournot and bertrand," Journal of Economic Theory, Elsevier, vol. 34(1), pages 71-94, October.
  9. Ramon Caminal & Xavier Vives, 1996. "Why Market Shares Matter: An Information-Based Theory," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 221-239, Summer.
  10. Wolinsky, Asher, 1983. "Prices as Signals of Product Quality," Review of Economic Studies, Wiley Blackwell, vol. 50(4), pages 647-58, October.
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