INFORMATIVE ADVERTISING: COMPETITION OR COOPERATION?*

Witness Simbanegavi

Journal of Industrial Economics, 2009, vol. 57, issue 1, 147-166

Abstract: In a duopoly version of the Grossman and Shapiro [1984] model of informative advertising, I examine firms' incentives to semicollude on advertising and the welfare implications thereof. I find that, relative to the noncooperative outcome, semicollusion on advertising is more profitable but is detrimental to welfare. I also find that when the advertising cost is ‘low,’ advertising semicollusion is more harmful to welfare than price semicollusion. These findings are important for competition policy since traditionally, cooperative advertising is not treated in the same light as price collusion.

Date: 2009
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