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Advertising for consideration

Carmen Astorne-Figari, Jose Lopez () and Aleksandr Yankelevich

Journal of Economic Behavior & Organization, 2019, vol. 157, issue C, 653-669

Abstract: We analyze markets where firms competing on price advertise to increase the probability of entering consumers’ consideration sets. We find that moderately costly advertising allows firms to raise prices and possibly profits by reducing the fraction of price-conscious consumers, and by segmenting the market according to whether or not consumers consider the lower priced firm. However, when the cost of advertising is sufficiently low, advertising leads to a prisoners’ dilemma that adversely impacts profits without affecting expected prices.

Keywords: Advertising; Bounded rationality; Consideration sets; Oligopoly; Price dispersion (search for similar items in EconPapers)
JEL-codes: D03 D21 D43 L13 M37 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.jebo.2018.11.002

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Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

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