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Non-comparative versus Comparative Advertising as a Quality Signal

  • Emons, Winand
  • Fluet, Claude

Two firms produce a product with a horizontal and a vertical characteristic that we call quality. The difference in the quality levels determines how the firms share the market. Consumers do not observe quality before purchase. Under non-comparative advertising a firm signals its own quality, under comparative advertising a firm signals the quality differential. In both scenarios firms may boast at a cost. In equilibrium firms actually do so, but consumers rationally infer the true quality if firms advertise. Under comparative advertising the firms never advertise together which they may do under non-comparative advertising.

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File URL: http://econstor.eu/bitstream/10419/48713/1/VfS_2011_pid_558.pdf
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Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis with number 48713.

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Date of creation: 2011
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Handle: RePEc:zbw:vfsc11:48713
Contact details of provider: Web page: http://www.socialpolitik.org/
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  1. Daughety, Andrew F. & Reinganum, Jennifer F., 2007. "Competition and confidentiality: Signaling quality in a duopoly when there is universal private information," Games and Economic Behavior, Elsevier, vol. 58(1), pages 94-120, January.
  2. Simon P. ANDERSON & Régis RENAULT, 2008. "Comparative Advertising: disclosing horizontal match information," THEMA Working Papers 2008-29, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  3. Emons, Winand & Fluet, Claude, 2007. "Accuracy versus Falsification Costs: The Optimal Amount of Evidence under Different Procedures," CEPR Discussion Papers 6150, C.E.P.R. Discussion Papers.
  4. 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.
  5. Anderson, Simon & Ciliberto, Federico & Liaukonyte, Jura, 2010. "Getting into Your Head(Ache): The Information Content of Advertising in the Over-the-Counter Analgesics Industry," MPRA Paper 24916, University Library of Munich, Germany.
  6. Fluet, Claude & Garella, Paolo G., 2002. "Advertising and prices as signals of quality in a regime of price rivalry," International Journal of Industrial Organization, Elsevier, vol. 20(7), pages 907-930, September.
  7. Christian Schultz, 1997. "Limit Pricing when Incumbents have Conflicting Interests," CIE Discussion Papers 1997-17, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  8. Mark N. Hertzendorf & Per Baltzer Overgaard, 2001. "Price Competition and Advertising Signals: Signaling by Competing Senders," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(4), pages 621-662, December.
  9. F. Barigozzi & M. Peitz, 2004. "Comparative Advertising and Competition Policy," Working Papers 524, Dipartimento Scienze Economiche, Universita' di Bologna.
  10. Mailath, George J, 1987. "Incentive Compatibility in Signaling Games with a Continuum of Types," Econometrica, Econometric Society, vol. 55(6), pages 1349-65, November.
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