Price Advertising and Coupons in a Monopoly Model

Ramon Caminal

Journal of Industrial Economics, 1996, vol. 44, issue 1, 33-52

Abstract: The paper studies the pricing and advertising policies of a monopolist in a situation where consumers discover prices by costly search. The monopolist is shown to choose between no advertising and large scale advertising. This is shown to be optimal behavior even with decreasing returns to scale to advertising expenditures which would a priori argue for small advertising expenditures. The optimal advertising policy is undertaken in conjunction with a pricing policy that is characterized by downwardly rigid prices. Flexibility with regard to realizations of a cost parameter is achieved via couponing, which, even though it is untargeted, allows for discrimination between ex ante identical consumers. Copyright 1996 by Blackwell Publishing Ltd.

Date: 1996
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