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Product quality, advertising intensity and market size

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  • Han, Bing
  • Chouinard, Hayley H.

Abstract

We develop a model of product differentiation in which firms strategically compete in product quality and advertising intensity. Products exhibit a combination of vertical and horizontal differentiation. A consumer’s utility has a stochastic relationship with quality, but they are more likely to prefer a higher quality good. Consumers face a trade-off between higher quality goods and price. Increased competition leads to less advertising, but may result in higher or lower quality products offered in the market.

Suggested Citation

  • Han, Bing & Chouinard, Hayley H., 2014. "Product quality, advertising intensity and market size," Economics Letters, Elsevier, vol. 124(2), pages 215-218.
    • Handle: RePEc:eee:ecolet:v:124:y:2014:i:2:p:215-218
    DOI: 10.1016/j.econlet.2014.05.020
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    More about this item

    Keywords

    Advertising intensity; Market size; Product quality;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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