The many conditions under which monopolistic advertising can differ from the social optimum

Richard Just and Rulon D. Pope ()
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Rulon D. Pope: Brigham Young University

Journal of Economics and Finance, 2017, vol. 41, issue 3, No 1, 440 pages

Abstract: Abstract This paper takes a new approach to a classical question about the relationship of monopolistic behavior to the social optimum when advertising is admitted. By characterizing conditions in terms of consumer preferences and using an uncommon approach to comparative static analysis, we derive a general result that produces a dozen special cases of interest. We also show that a plausible preference specification is general enough to generate each of these cases. The specification is amenable to estimation and inference with common data, although empirical application is beyond the scope of this paper. Results are derived assuming that advertising follows the complementary rather than persuasive advertising paradigm where consumers have stable quasilinear preferences and the amount of advertising is seller-determined rather than offered at a unit price to consumers.

Keywords: Advertising; Monopoly; Social optimum (search for similar items in EconPapers)
JEL-codes: D41 D42 D60 M37 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s12197-016-9360-z

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