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Advertising and Consumer Search in a Duopoly Model

Author

Listed:
  • Maarten C.W. Janssen

    (Faculty of Economics, Erasmus Universiteit Rotterdam)

  • Mariëlle C. Non

    (Faculty of Economics, Erasmus Universiteit Rotterdam)

Abstract

We consider a duopoly in a homogenous goods market where part of the consumers are ex ante uninformed about prices. Information can come through two different channels: advertising and sequential consumer search. We arrive at the following results. First, there is no monotone relationship between prices and the degree of advertising. Second, advertising and search are “substitutes” for a large range of parameters. Third, when the cost of either search or advertising vanishes, the competitive outcome arises. Finally, both expected advertised and non-advertised prices are non-monotonic in search cost. One of the implications is that firms actually may benefit from consumers having low (rather than high) search costs. This discussion paper has resulted in a publication in International Journal of Industrial Organization , 2008, 26(1), 354-71.

Suggested Citation

  • Maarten C.W. Janssen & Mariëlle C. Non, 2005. "Advertising and Consumer Search in a Duopoly Model," Tinbergen Institute Discussion Papers 05-022/1, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20050022
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    References listed on IDEAS

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    1. Stahl II Dale O., 1994. "Oligopolistic Pricing and Advertising," Journal of Economic Theory, Elsevier, vol. 64(1), pages 162-177, October.
    2. Maarten C.W. Janssen & Jose Luis Moraga-Gonzalez & Matthijs R. Wildenbeest, 2004. "A Note on Costly Sequential Search and Oligopoly Pricing," Tinbergen Institute Discussion Papers 04-068/1, Tinbergen Institute.
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    7. Janssen, Maarten C.W. & Non, Marielle C., 2008. "Advertising and consumer search in a duopoly model," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 354-371, January.
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    12. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    13. J. Yannis Bakos, 1997. "Reducing Buyer Search Costs: Implications for Electronic Marketplaces," Management Science, INFORMS, vol. 43(12), pages 1676-1692, December.
    14. Paul Klemperer, 1987. "The Competitiveness of Markets with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 138-150, Spring.
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    Citations

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    Cited by:

    1. McCarthy, Ian M., 2016. "Advertising intensity and welfare in an equilibrium search model," Economics Letters, Elsevier, vol. 141(C), pages 20-26.
    2. Astorne-Figari, Carmen & López, José Joaquín & Yankelevich, Aleksandr, 2019. "Advertising for consideration," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 653-669.
    3. Wilson, Chris M., 2010. "Ordered search and equilibrium obfuscation," International Journal of Industrial Organization, Elsevier, vol. 28(5), pages 496-506, September.
    4. Sandro Shelegia & Chris M. Wilson, 2014. "A Utility-Based Model of Sales with Informative Advertising," Vienna Economics Papers vie1406, University of Vienna, Department of Economics.
    5. Janssen, Maarten C.W. & Non, Marielle C., 2008. "Advertising and consumer search in a duopoly model," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 354-371, January.
    6. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899.
    7. Dmitry Ryvkin & Danila Serra, 2019. "Is More Competition Always Better? An Experimental Study Of Extortionary Corruption," Economic Inquiry, Western Economic Association International, vol. 57(1), pages 50-72, January.
    8. Ian McCarthy, 2008. "Simulating Sequential Search Models with Genetic Algorithms: Analysis of Price Ceilings, Taxes, Advertising and Welfare," CAEPR Working Papers 2008-010, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
    9. Fershtman, Chaim & Fishman, Arthur & Zhou, Jidong, 2018. "Search and categorization," International Journal of Industrial Organization, Elsevier, vol. 57(C), pages 225-254.
    10. Aleksandr Yankelevich & Brady Vaughan, 2016. "Price‐Match Announcements in a Consumer Search Duopoly," Southern Economic Journal, John Wiley & Sons, vol. 82(4), pages 1186-1211, April.
    11. Maarten C.W. Janssen & Marielle C. Non, 2006. "Going where the Ad leads you: On High Advertised Prices and Search where to buy," Tinbergen Institute Discussion Papers 06-075/1, Tinbergen Institute.
    12. Sandro Shelegia & Chris M Wilson, 2014. "A Utility-Based Model of Sales with Informative Advertising," Discussion Paper Series 2014_09, Department of Economics, Loughborough University, revised Oct 2014.
    13. Shi, Hongyan & Liu, Yunchuan & Petruzzi, Nicholas C., 2019. "Informative advertising in a distribution channel," European Journal of Operational Research, Elsevier, vol. 274(2), pages 773-787.
    14. Stühmeier Torben, 2015. "Price Disclosure Rules and Consumer Price Comparison," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(2), pages 815-835, April.
    15. Maarten C. W. Janssen & Marielle C. Non, 2009. "Going Where the Ad Leads You: On High Advertised Prices and Searching Where to Buy," Marketing Science, INFORMS, vol. 28(1), pages 87-98, 01-02.
    16. Wang, Chengsi, 2011. "Informative Advertising, Consumer Search and Transparency Policy," MPRA Paper 34977, University Library of Munich, Germany.
    17. Ian McCarthy, 2008. "Simulating Sequential Search Models with Genetic Algorithms: Analysis of Price Ceilings, Taxes, Advertising and Welfare," Caepr Working Papers 2008-010, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
    18. Muck, Johannes, 2016. "Tariff-mediated network effects with incompletely informed consumers," DICE Discussion Papers 210, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    19. Obradovits, Martin, 2015. "Going to the Discounter: Consumer Search with Local Market Heterogeneities," MPRA Paper 66613, University Library of Munich, Germany.
    20. McCarthy, Ian M., 2016. "Advertising intensity and welfare in an equilibrium search model," Economics Letters, Elsevier, vol. 141(C), pages 20-26.
    21. Ruth G. Gilgenbach, 2009. "On Polarized Prices and Costly Sequential Search," Departmental Working Papers 0907, Southern Methodist University, Department of Economics.
    22. Bikram P. Ghosh & Michael R. Galbreth, 2023. "Effect of search cost in the presence of search deterring informative advertising," Quantitative Marketing and Economics (QME), Springer, vol. 21(3), pages 357-379, September.
    23. repec:smu:ecowpa:1301 is not listed on IDEAS

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    More about this item

    Keywords

    consumer search; advertising; price dispersion;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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