Upstream Pricing and Advertising Signal Downstream Demand

Svend Albaek and Per Overgaard ()

Journal of Economics & Management Strategy, 1992, vol. 1, issue 4, 677-98

Abstract: This paper considers price and advertising decisions by a monopolist manufacturer who is privately informed about the strength of consumer demand. Consumers respond to advertising and to the retail price chosen by an uninformed retailer on the basis of his beliefs about demand. This signaling game has a unique intuitive equilibrium outcome in which a high-demand manufacturer chooses his full-information pair of wholesale price and advertising. When demand is low, the wholesale price is distorted downward from its full information level, whereas demand-enhancing advertising may be distorted in either direction. Dissipative advertising is not distorted because it is never used. Copyright 1992 by MIT Press.

Date: 1992
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Journal Article: Upstream Pricingand Advertising Signal Downstream Demand (1992)
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