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Caught in a stranglehold? Advertising: What else?

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  • Laurent Linnemer

    (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique)

Abstract

I analyze a quality signaling problem by a monopoly introducing a new experience good. A high-quality type aims to signal itself to consumers but can be imitated by a low-quality type with either a low or a high cost. In the unique separating equilibrium after deletion of dominated strategies, the high-quality type separates through a marketing mix of price and dissipative advertising. Advertising is used despite the absence of repeat purchases or informed consumers.

Suggested Citation

  • Laurent Linnemer, 2011. "Caught in a stranglehold? Advertising: What else?," Post-Print hal-00558160, HAL.
    • Handle: RePEc:hal:journl:hal-00558160
    DOI: 10.1111/j.1467-9957.2010.02182.x
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    References listed on IDEAS

    as
    1. Linnemer, Laurent, 2002. "Price and advertising as signals of quality when some consumers are informed," International Journal of Industrial Organization, Elsevier, vol. 20(7), pages 931-947, September.
    2. Fluet, Claude & Garella, Paolo G., 2002. "Advertising and prices as signals of quality in a regime of price rivalry," International Journal of Industrial Organization, Elsevier, vol. 20(7), pages 907-930, September.
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    Cited by:

    1. Carla Guadalupi, 2018. "Learning quality through prices and word‐of‐mouth communication," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 27(1), pages 53-70, March.

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    Keywords

    Advertising; Quality; Signaling;
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