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Strategic Advertising And Directed Search

Author

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  • Pedro Gomis‐Porqueras
  • Benoit Julien
  • Chengsi Wang

Abstract

Imperfect observability and costly informative advertising are introduced into a standard directed search framework. Capacity‐constrained sellers send costly advertisements to direct buyers' uncoordinated search by specifying their location and terms of trade. We show that the equilibrium advertising intensity is nonmonotonic in the buyer–seller ratio. In addition, we also find that price posting dominates auctions since both mechanisms yield the same expected revenue, but the latter results in higher advertising expense. Finally, we find a positive comovement between market transparency and price for low market tightness when the measure of informed buyers is endogenous.

Suggested Citation

  • Pedro Gomis‐Porqueras & Benoit Julien & Chengsi Wang, 2017. "Strategic Advertising And Directed Search," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 58(3), pages 783-806, August.
    • Handle: RePEc:wly:iecrev:v:58:y:2017:i:3:p:783-806
    DOI: 10.1111/iere.12235
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    References listed on IDEAS

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    Cited by:

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    2. José L. Moraga-González & Makoto Watanabe & José Luis Moraga Gonzalez, 2023. "Price Equilibrium with Selling Constraints," CESifo Working Paper Series 10583, CESifo.
    3. Han Han Peking & Benoit Julien & Liang Wang, 2021. "On the Robustness of Pricing Mechanisms," Working Papers 202105, University of Hawaii at Manoa, Department of Economics.
    4. Atayev, Atabek, 2022. "Uncertain product availability in search markets," Journal of Economic Theory, Elsevier, vol. 204(C).
    5. Atabek Atayev, 2021. "Uncertain Product Availability in Search Markets," Papers 2109.15211, arXiv.org.
    6. Tan, Serene, 2022. "Income inequality and endogenous market structure under directed search," Journal of Economic Theory, Elsevier, vol. 201(C).
    7. Kultti, Klaus & Pekkarinen, Teemu, 2021. "Equilibrium price and advertisement distributions," Journal of Mathematical Economics, Elsevier, vol. 97(C).
    8. Chengsi Wang & Makoto Watanabe, 2021. "Directed Search on a Platform: Meet Fewer to Match More," Monash Economics Working Papers 2021-02, Monash University, Department of Economics.
    9. Atayev, Atabek, 2021. "Uncertain product availability in search markets," ZEW Discussion Papers 21-089, ZEW - Leibniz Centre for European Economic Research.

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