Specialized advertising and price competition with endogenous advertising fees

Jose M. Hernandez () and Lola Esteban ()
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Jose M. Hernandez: University of Zaragoza
Lola Esteban: University of Zaragoza

Economics Bulletin, 2011, vol. 31, issue 2, 1686-1695

Abstract: This paper studies how the strategic interaction between a specialized communication platform and two firms, competing in prices and advertising efforts, determines the equilibrium advertising fee and the pattern of competition between sellers. We show that the link between information and price competition in the product market leads the platform to ask for high prices for its advertising services, in the sense that the resulting product prices rise to the level where the marginal potential consumer achieves zero utility, so firms can exercise a high degree of market power and consumers achieve a low surplus.

Keywords: informative advertising; price competition; horizontal differentiation. (search for similar items in EconPapers)
JEL-codes: L0 (search for similar items in EconPapers)
Date: 2011-06-07
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Citations: View citations in EconPapers (2)

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