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Informative Advertising in Directed Search

Author

Listed:
  • Pedro Gomis-Porqueras

    (Department of Economics, Monash University)

  • Benoit Julien

    (School of Economics, University of New South Wales)

  • Chengsi Wang

    (School of Economics, University of New South Wales)

Abstract

We consider a directed search environment where capacity constrained sellers reach uncoordinated buyers through costly advertising while buyers observed all prices probabilistically. We show that: (i) the equilibrium advertising intensity has an inverted U-shape in market tightness, (ii) the equilibrium advertising intensity is higher under an auction mechanism than under posted pricing, and (iii) the equilibrium price and measure of informed buyers may be positively correlated even in large markets.

Suggested Citation

  • Pedro Gomis-Porqueras & Benoit Julien & Chengsi Wang, 2012. "Informative Advertising in Directed Search," Discussion Papers 2012-26, School of Economics, The University of New South Wales.
    • Handle: RePEc:swe:wpaper:2012-26
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    File URL: http://research.economics.unsw.edu.au/RePEc/papers/2012-26.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    costly advertising; directed search; imperfect observability; sales mechanism.;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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