Informative Advertising and Consumer Search in a Differentiated-Products Duopoly

Levent Celik

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: This paper analyzes informative advertising in a duopoly market with differentiated products when consumer search is costless. If consumers are fully rational, exposure to a single advertisement is sufficient for them to obtain complete market information. In this case, firms undersupply advertising compared to the social optimum because of free-riding. If consumers are not fully rational, they may ignore the existence of another firm when the only advertisement they receive quotes the monopoly price. In this case, both firms advertise the monopoly price, and the market may produce too much or too little advertising compared to the social optimum.

Keywords: Search; Duopoly; Informative Advertising; Product Differentiation. (search for similar items in EconPapers)
JEL-codes: L13 M37 (search for similar items in EconPapers)
Date: 2007-07
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic and nep-mkt
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Persistent link: https://EconPapers.repec.org/RePEc:cer:papers:wp332

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