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Advertising intensity and welfare in an equilibrium search model

Ian McCarthy

Economics Letters, 2016, vol. 141, issue C, 20-26

Abstract: I analyze an equilibrium search model in a duopoly setting with bilateral heterogeneities in production and search costs in which firms can advertise by announcing price. I compare the market advertising level to the socially optimal level, where I find that costly search can improve welfare and that firms may under- or over-advertise relative to the social optimum depending on the costs of search. The results suggest that, in markets with sufficiently low search costs, firms are likely over-advertising relative to the socially optimal level, and vice versa for markets with sufficiently high search costs.

Keywords: Search; Advertising; Welfare (search for similar items in EconPapers)
JEL-codes: D21 D43 D83 M37 (search for similar items in EconPapers)
Date: 2016
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Working Paper: Advertising Intensity and Welfare in an Equilibrium Search Model (2008) Downloads
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DOI: 10.1016/j.econlet.2016.01.022

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