IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/79872.html
   My bibliography  Save this paper

Comparative Advertising: The role of prices

Author

Listed:
  • Baumann, Stuart

Abstract

In markets where firms sell similar goods to their competitors, firms may be able to free-ride off the costly price signalling of competitor firms by engaging in price comparative advertising. As the goods are similar, consumers can reason that if one good is high quality (revealed through price signalling) then so is the other. This paper models this phenomenon and finds that in equilibrium there will be firms price signalling as well as freeriding firms that signal through price comparative advertising. Welfare is strictly higher in markets where advertising firms are active relative to pure price signalling markets. In some cases advertising markets can be even more efficient than full information markets as advertisers surrender market power to avoid costly price signalling.

Suggested Citation

  • Baumann, Stuart, 2017. "Comparative Advertising: The role of prices," MPRA Paper 79872, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:79872
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/79872/1/MPRA_paper_79872.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-659, September.
    2. Shelegia, Sandro, 2012. "Asymmetric marginal costs in search models," Economics Letters, Elsevier, vol. 116(3), pages 551-553.
    3. In-Koo Cho & David M. Kreps, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(2), pages 179-221.
    4. Frédéric Koessler & Régis Renault, 2012. "When does a firm disclose product information?," RAND Journal of Economics, RAND Corporation, vol. 43(4), pages 630-649, December.
    5. Riley, John G, 1979. "Informational Equilibrium," Econometrica, Econometric Society, vol. 47(2), pages 331-359, March.
    6. Bagwell, Kyle & Riordan, Michael H, 1991. "High and Declining Prices Signal Product Quality," American Economic Review, American Economic Association, vol. 81(1), pages 224-239, March.
    7. repec:dau:papers:123456789/12478 is not listed on IDEAS
    8. Asher Wolinsky, 1983. "Prices as Signals of Product Quality," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 50(4), pages 647-658.
    9. Stahl, Dale O, II, 1989. "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, American Economic Association, vol. 79(4), pages 700-712, September.
    10. Mark Bagnoli & Ted Bergstrom, 2006. "Log-concave probability and its applications," Studies in Economic Theory, in: Charalambos D. Aliprantis & Rosa L. Matzkin & Daniel L. McFadden & James C. Moore & Nicholas C. Yann (ed.), Rationality and Equilibrium, pages 217-241, Springer.
    11. Andrew F. Daughety & Jennifer F. Reinganum, 2008. "Imperfect competition and quality signalling," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 163-183, March.
    12. Simon P. Anderson & Régis Renault, 2009. "Comparative advertising: disclosing horizontal match information," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 558-581, September.
    13. Tibor Scitovszky, 1944. "Some Consequences of the Habit of Judging Quality by Price," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 12(2), pages 100-105.
    14. repec:dau:papers:123456789/12406 is not listed on IDEAS
    15. repec:hal:pseose:hal-00813051 is not listed on IDEAS
    16. Levent Celik, 2014. "Information Unraveling Revisited: Disclosure of Horizontal Attributes," Journal of Industrial Economics, Wiley Blackwell, vol. 62(1), pages 113-136, March.
    17. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 87(3), pages 355-374.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Janssen, Maarten C.W. & Roy, Santanu, 2010. "Signaling quality through prices in an oligopoly," Games and Economic Behavior, Elsevier, vol. 68(1), pages 192-207, January.
    2. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899, September.
    3. Janssen, Maarten, 2017. "Regulating False Discloure," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168159, Verein für Socialpolitik / German Economic Association.
    4. Adriani, Fabrizio & Deidda, Luca G., 2011. "Competition and the signaling role of prices," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 412-425, July.
    5. Richard Chisik, 2015. "Job market signalling, stereotype threat and counter‐stereotypical behaviour," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 48(1), pages 155-188, February.
    6. Mailath, George J. & Nöldeke, Georg, 2006. "Extreme Adverse Selection, Competitive Pricing, and Market Breakdown," Working papers 2006/09, Faculty of Business and Economics - University of Basel.
    7. Florian Morath & Johannes Münster, 2018. "Online Shopping and Platform Design with Ex Ante Registration Requirements," Management Science, INFORMS, vol. 64(1), pages 360-380, January.
    8. Maarten C. W. Janssen & Mariya Teteryanikova, 2012. "Horizontal Product Differentiation: Disclosure and Competition," Vienna Economics Papers 1205, University of Vienna, Department of Economics.
    9. Daeyoung Jeong, 2019. "Job market signaling with imperfect competition among employers," International Journal of Game Theory, Springer;Game Theory Society, vol. 48(4), pages 1139-1167, December.
    10. Minghua Chen & Konstantinos Serfes & Eleftherios Zacharias, 2023. "Prices as signals of product quality in a duopoly," International Journal of Game Theory, Springer;Game Theory Society, vol. 52(1), pages 1-31, March.
    11. Dubovik, Andrei & Janssen, Maarten C.W., 2012. "Oligopolistic competition in price and quality," Games and Economic Behavior, Elsevier, vol. 75(1), pages 120-138.
    12. Salvatore Piccolo & Piero Tedeschi & Giovanni Ursino, 2018. "Deceptive Advertising with Rational Buyers," Management Science, INFORMS, vol. 64(3), pages 1291-1310, March.
    13. Schmidbauer, Eric & Lubensky, Dmitry, 2018. "New and improved?," International Journal of Industrial Organization, Elsevier, vol. 56(C), pages 26-48.
    14. Maarten C. W. Janssen & Mariya Teteryatnikova, 2017. "Mystifying but not misleading: when does political ambiguity not confuse voters?," Public Choice, Springer, vol. 172(3), pages 501-524, September.
    15. Helmut Bester & Matthias Lang & Jianpei Li, 2021. "Signaling versus Auditing," RAND Journal of Economics, RAND Corporation, vol. 52(4), pages 859-883, December.
    16. Maarten C.W. Janssen & Mariya Teteryatnikova, 2016. "Horizontal Product Differentiation: Disclosure and Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 64(4), pages 589-620, December.
    17. Dmitri Kuksov & Yuanfang Lin, 2017. "Signaling Low Margin Through Assortment," Management Science, INFORMS, vol. 63(4), pages 1166-1183, April.
    18. Philippe Mahenc & Alexandre Volle, 2021. "Price Signaling and Quality Monitoring in Markets for Credence Goods," CEE-M Working Papers hal-03098440, CEE-M, Universtiy of Montpellier, CNRS, INRA, Montpellier SupAgro.
    19. Ki, Hyoshin & Kim, Jeong-Yoo, 2022. "Sell green and buy green: A signaling theory of green products," Resource and Energy Economics, Elsevier, vol. 67(C).
    20. Nathan Berg & Jeong‐Yoo Kim & Ilgyun Seon, 2021. "A performance‐based payment: Signaling the quality of a credence good," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(5), pages 1117-1131, July.

    More about this item

    Keywords

    Comparative advertising; Price Signalling;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:79872. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.