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Coordination In Markets With Consumption Externalities: Advertising And Product Quality

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  • IVAN PASTINE
  • TUVANA PASTINE

Abstract

In this paper we study advertising in markets with positive consumption externalities. In such markets, we show that firms may engage in advertising competition to coordinate consumer expectations on their own brand as long as they produce goods of similar quality. The firm with the lower-quality product has a greater incentive to advertise. Hence in equilibrium, the lower‐quality product will often be more popular.

Suggested Citation

  • Ivan Pastine & Tuvana Pastine, 2011. "Coordination In Markets With Consumption Externalities: Advertising And Product Quality," Manchester School, University of Manchester, vol. 79(1), pages 45-62, January.
    • Handle: RePEc:bla:manchs:v:79:y:2011:i:1:p:45-62
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    File URL: http://hdl.handle.net/10.1111/j.1467-9957.2010.02186.x
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    References listed on IDEAS

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    Cited by:

    1. Whelan Adele, 2019. "Entry Deterrence, Coordinating Advertising and Pricing in Markets with Consumption Externalities," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 19(2), pages 1-16, June.
    2. Ivan Pastine & Tuvana Pastine, 2023. "Equilibrium existence and expected payoffs in all-pay auctions with constraints," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 75(4), pages 983-1007, May.
    3. Maria Alipranti & Emmanuel Petrakis, 2013. "Comparative Advertising in Markets with Network Externalities," Working Papers 1306, University of Crete, Department of Economics.

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