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Informative Brand Advertising and Pricing Strategies in Internet Markets with Heterogeneous Consumer Search

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  • Stephen McDonald
  • Colin Wren

Abstract

The use of information intermediaries has been shown to undermine the effect of brand in online markets. In this paper, the effect of consumer search on the relationship between brand advertising and pricing strategies is analysed. Price data are taken from the leading UK motor insurance comparison website, with the advantage that prices can be related to the search characteristics of consumers and to the advertising expenditure of firms. The paper finds that more-advertised firms have lower price rankings at the comparison site, indicating that advertising is informative in this market. The main result is that consumer search weakens the relationship between advertising and pricing. An implication is that increased usage of price comparison sites will make informative brand advertising less important.

Suggested Citation

  • Stephen McDonald & Colin Wren, 2012. "Informative Brand Advertising and Pricing Strategies in Internet Markets with Heterogeneous Consumer Search," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 19(1), pages 103-117, February.
    • Handle: RePEc:taf:ijecbs:v:19:y:2012:i:1:p:103-117
    DOI: 10.1080/13571516.2012.642642
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    References listed on IDEAS

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    1. Mark Armstrong & Robert Porter (ed.), 2007. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 3, number 1.
    2. Marco A. Haan & José L. Moraga‐González, 2011. "Advertising for Attention in a Consumer Search Model," Economic Journal, Royal Economic Society, vol. 121(552), pages 552-579, May.
    3. Bagwell, Kyle, 2007. "The Economic Analysis of Advertising," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 28, pages 1701-1844, Elsevier.
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    Cited by:

    1. Carsten Herbes & Lorenz Braun & Dennis Rube, 2016. "Pricing of Biomethane Products Targeted at Private Households in Germany—Product Attributes and Providers’ Pricing Strategies," Energies, MDPI, vol. 9(4), pages 1-15, March.
    2. Sahar Karimi, 2021. "Cross-visiting Behaviour of Online Consumers Across Retailers’ and Comparison Sites, a Macro-Study," Information Systems Frontiers, Springer, vol. 23(3), pages 531-542, June.
    3. Stephen McDonald & Colin Wren, 2018. "Multibrand pricing as a strategy for consumer search obfuscation in online markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 27(2), pages 171-187, June.
    4. Christopher P. Holland & Julia A. Jacobs & Stefan Klein, 2016. "The role and impact of comparison websites on the consumer search process in the US and German airline markets," Information Technology & Tourism, Springer, vol. 16(1), pages 127-148, March.
    5. Stephen McDonald & Colin Wren, 2017. "Consumer Search Ability, Price Dispersion and the Digital Divide," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(2), pages 234-250, April.

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