Effect of search cost in the presence of search deterring informative advertising

Bikram P. Ghosh () and Michael R. Galbreth
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Bikram P. Ghosh: Eller College of Management University of Arizona
Michael R. Galbreth: Haslam College of Business University of Tennessee

Quantitative Marketing and Economics (QME), 2023, vol. 21, issue 3, No 2, 357-379

Abstract: Abstract Consumers often search to discover the prices and other attributes of competing products. Firms can preempt such searching by placing informative advertisements, which provide a substitute for consumer search by providing price and attribute information. We model these two alternative sources of product information in a competitive context, where firms choose both price and advertising efforts. By combining these two classic approaches to consumer information provision – advertising and search – in a single model, we find several novel results on the effect of search costs on equilibrium prices, profits, and consumer surplus. An increase in search cost has a dual effect: it lowers price competition (direct effect). It also increases advertising competition, increasing price competition (indirect effect). Changes in price, profit, and consumer surplus with search cost depend on the relative strengths of the two effects.

Keywords: Endogenous search; Informative advertising; Search deterrence; Advertising competition; D83 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s11129-023-09265-w

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