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Equilibrium price and advertisement distributions

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  • Kultti, Klaus
  • Pekkarinen, Teemu

Abstract

We consider an economy where many sellers sell identical goods to many buyers. Each seller has a unit supply and each buyer has a unit demand. The only possible information flow about prices is through costly advertising. We show that in equilibrium the sellers use mixed strategies in pricing which leads to price and advertisement distributions. With convex advertising costs each seller sends only one advertisement in the market. We also delineate a class of advertising costs which ensures that sellers may send multiple advertisements in equilibrium. Higher prices are advertised more than lower prices.

Suggested Citation

  • Kultti, Klaus & Pekkarinen, Teemu, 2021. "Equilibrium price and advertisement distributions," Journal of Mathematical Economics, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:mateco:v:97:y:2021:i:c:s0304406821000987
    DOI: 10.1016/j.jmateco.2021.102535
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    References listed on IDEAS

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    Keywords

    Advertising; Price distributions;

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