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Toward a Reconciliation of Market Power and Information Theories of Advertising Effects on Price Elasticity

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  • Mitra, Anusree
  • Lynch, John G, Jr

Abstract

Prior work on the economic effects of advertising has presented conflicting views. Some authors have suggested that advertising creates market power by artificially differentiating brands and thereby lowering price elasticity. Others have viewed advertising as an efficient source of information about the existence of substitutes, arguing that advertising increases price elasticity. The present research proposes a unifying theoretical model in which advertising affects price elasticity through its influence on two mediating constructs: the size of the consideration set and the relative strength of preference. Pretests 1 and 2 examine the effects of advertising on these two constructs. Results from the main experiment show that, in accordance with the theoretical framework, the same advertisements that increased price elasticity in some decision environments decreased it in others. Copyright 1995 by the University of Chicago.

Suggested Citation

  • Mitra, Anusree & Lynch, John G, Jr, 1995. "Toward a Reconciliation of Market Power and Information Theories of Advertising Effects on Price Elasticity," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 21(4), pages 644-659, March.
    • Handle: RePEc:oup:jconrs:v:21:y:1995:i:4:p:644-59
    DOI: 10.1086/209425
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    Cited by:

    1. Mai, Robert & Symmank, Claudia & Seeberg-Elverfeldt, Berenike, 2016. "Light and Pale Colors in Food Packaging: When Does This Package Cue Signal Superior Healthiness or Inferior Tastiness?," Journal of Retailing, Elsevier, vol. 92(4), pages 426-444.
    2. Bleier, Alexander & Eisenbeiss, Maik, 2015. "The Importance of Trust for Personalized Online Advertising," Journal of Retailing, Elsevier, vol. 91(3), pages 390-409.
    3. Chan, Tat Y. & Narasimhan, Chakravarthi & Yoon, Yeujun, 2017. "Advertising and price competition in a manufacturer-retailer channel," International Journal of Research in Marketing, Elsevier, vol. 34(3), pages 694-716.
    4. Soberman, David A. & Xiang, Yi, 2022. "Designing the content of advertising in a differentiated market," International Journal of Research in Marketing, Elsevier, vol. 39(1), pages 190-211.
    5. Tsuruta, Yoshitaka, 2008. "What affects intranational price dispersion?: The case of Japanese gasoline prices," Japan and the World Economy, Elsevier, vol. 20(4), pages 563-584, December.
    6. Meise, Jan Niklas & Rudolph, Thomas & Kenning, Peter & Phillips, Diane M., 2014. "Feed them facts: Value perceptions and consumer use of sustainability-related product information," Journal of Retailing and Consumer Services, Elsevier, vol. 21(4), pages 510-519.
    7. Alicia Barroso & Gerard Llobet, 2011. "Advertising and Consumer Awareness of New, Differentiated Products," Working Papers wp2011_1104, CEMFI.
    8. Tackx, Koen & Rothenberger, Sandra & Verdin, Paul, 2017. "Is advertising for losers? An empirical study from a value creation and value capturing perspective," European Management Journal, Elsevier, vol. 35(3), pages 327-335.
    9. Diehl, Kristin & van Herpen, Erica & Lamberton, Cait, 2015. "Organizing Products with Complements versus Substitutes: Effects on Store Preferences as a Function of Effort and Assortment Perceptions," Journal of Retailing, Elsevier, vol. 91(1), pages 1-18.
    10. Yao, Jun & Oppewal, Harmen, 2016. "Unit Pricing Increases Price Sensitivity Even When Products are of Identical Size," Journal of Retailing, Elsevier, vol. 92(1), pages 109-121.

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