CAUGHT IN A STRANGLEHOLD? ADVERTISING: WHAT ELSE?

Laurent Linnemer

Manchester School, 2011, vol. 79, issue 1, 63-80

Abstract: I analyze a quality signaling problem by a monopoly introducing a new experience good. A high-quality type aims to signal itself to consumers but can be imitated by a low‐quality type with either a low or a high cost. In the unique separating equilibrium after deletion of dominated strategies, the high‐quality type separates through a marketing mix of price and dissipative advertising. Advertising is used despite the absence of repeat purchases or informed consumers.

Date: 2011
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Working Paper: Caught in a stranglehold? Advertising: What else? (2011)
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