Informative Advertising and Product Differentiation

Nikolaos Vettas () and Charalambos Christou

No 3953, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study informative advertising within a random-utility, non-localized competition model of product differentiation. In a symmetric equilibrium, advertisement is sub-optimal when product differentiation is small, and excessive otherwise. Increasing the number of firms may increase or decrease the market price. We emphasise that quasi-concavity of profits may fail, as firms may prefer a high price deviation, targeting consumers that only become informed about their product (a feature that, while present in earlier models of informative advertising, has not received enough attention). As product differentiation becomes small, a symmetric equilibrium does not exist.

Keywords: Random utility; Informative advertising; Product differentiation; Non-localized competition (search for similar items in EconPapers)
JEL-codes: D83 L13 L15 (search for similar items in EconPapers)
Date: 2003-06
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Citations: View citations in EconPapers (2)

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Journal Article: On informative advertising and product differentiation (2008)
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