Pricing, advertising, and endogenous consideration of an “insistent” product

Peter Landry

International Journal of Industrial Organization, 2022, vol. 80, issue C

Abstract: This paper theoretically investigates the pricing and advertising decisions of a monopolist that sells to consumers who, in each period, might consider the (cognitively costly) decision to buy its product. In the proposed model, consumers can be compelled by advertising to consider the buying decision, while the likelihood of considering the decision also depends on past buying decisions. A product is then said to be “insistent” if not buying it (when considered) increases the likelihood of considering the buying decision in the next period, and “non-insistent” if the opposite is true. As one of several implied differences for marketing such products, it is optimal to gradually reduce prices from a relatively high entry price when selling an insistent product, and the opposite for a non-insistent product, though both strategies should be refreshed with each advertising cycle. The model also offers a potential micro-grounded mechanism (in terms of consumers’ “endogenous consideration”) for several advertising concepts, including diminishing returns from repeated advertising, greater returns when advertising newer products, and pulsing (as an optimal strategy).

Keywords: Applied theory; Behavioral economics; Endogenous consideration; Advertising; Pricing (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:80:y:2022:i:c:s0167718721000904

DOI: 10.1016/j.ijindorg.2021.102798

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