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Coordination Economies, Advertising, and Search Behavior in Retail Markets

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Author Info
Bagwell, Kyle
Ramey, Garey

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Abstract

The authors introduce a model of the retail firm in which consumers and active firms benefit collectively from coordination of sales at fewer firms. Using this model, the authors show that ostensibly uninformative advertising plays a key role in bringing about coordination economies by directing consumer search toward firms that offer the best deals. Optimal consumer search takes the form of a simple rule of thumb that uses observed advertising information to guide search. Both industry concentration and social surplus are higher in the presence of advertising, relative to a no-advertising benchmark. Copyright 1994 by American Economic Association.

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Publisher Info
Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 84 (1994)
Issue (Month): 3 (June)
Pages: 498-517
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Handle: RePEc:aea:aecrev:v:84:y:1994:i:3:p:498-517

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  1. Yongmin Chen & Chuan He, 2006. "Paid Placement: Advertising and Search on the Internet," Working Papers 06-02, NET Institute, revised Sep 2006. [Downloadable!]
  2. Zhou, Jidong, 2009. "Prominence and Consumer Search: The Case With Multiple Prominent Firms," MPRA Paper 12554, University Library of Munich, Germany. [Downloadable!]
  3. Mark Armstrong & John Vickers & Jidong Zhou, 2008. "Prominence and Consumer Search," Economics Series Working Papers 379, University of Oxford, Department of Economics. [Downloadable!]
    Other versions:
  4. Vitor Trindade & Johannes Moenius, 2007. "Networks, Standards and Intellectual Property Rights," Working Papers 0705, Department of Economics, University of Missouri. [Downloadable!]
  5. Junichiro Ishida, 2004. "Education as advertisement," Economics Bulletin, Economics Bulletin, vol. 10(8), pages 1-8. [Downloadable!]
  6. Ian McCarthy, 2008. "Advertising Intensity and Welfare in an Equilibrium Search Model," Caepr Working Papers 2008-003, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington. [Downloadable!]
  7. Huw Dixon & Ernesto Somma, . "Coordination and Equilibrium selection in mean defined supermodular games under payoff monotonic selection dynamics," Discussion Papers 99/37, Department of Economics, University of York. [Downloadable!]
  8. Simbanegavi, Witness, 2008. "Loss leader or low margin leader? Advertising and the degree of product differentiation," MPRA Paper 9694, University Library of Munich, Germany. [Downloadable!]
  9. Kyle Bagwell & Garey Ramey, 1992. "Coordination Economies," Discussion Papers 1034, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
    Other versions:
  10. Kyle Bagwell & Robert W. Staiger, 1996. "Strategic Export Subsidies and Reciprocal Trade Agreements: The Natural Monopoly Case," NBER Working Papers 5574, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  11. Draganska, Michaela & Klapper, Daniel & Villas-Boas, Sofia B., 2007. "Determinants of Margins in the Distribution Channel: An Empirical Investigation," Research Papers 1959, Stanford University, Graduate School of Business. [Downloadable!]
  12. Christou, Charalambos & Vettas, Nikolaos, 2003. "Informative Advertising and Product Differentiation," CEPR Discussion Papers 3953, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  13. C. Robert Clark & Ignatius J. Horstmann, 2004. "Advertising and Coordination in Markets with Consumption Scale Effects," CIRANO Working Papers 2004s-35, CIRANO. [Downloadable!]
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  14. Guido Menzio, 2007. "A Theory of Partially Directed Search," PIER Working Paper Archive 09-006, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania. [Downloadable!]
    Other versions:
  15. Haan, Marco A. & Moraga-Gonzalez, Jose L., 2009. "Advertising for attention in a consumer search model," IESE Research Papers D/794, IESE Business School. [Downloadable!]
    Other versions:
  16. Susan Athey & Armin Schmutzler, 1999. "Innovation and the Emergence of Market Dominance," Working Papers 9906, University of Zurich, Socioeconomic Institute. [Downloadable!]
    Other versions:
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