Informative Brand Advertising and Pricing Strategies in Internet Markets with Heterogeneous Consumer Search

Stephen McDonald and Colin Wren

International Journal of the Economics of Business, 2012, vol. 19, issue 1, 103-117

Abstract: The use of information intermediaries has been shown to undermine the effect of brand in online markets. In this paper, the effect of consumer search on the relationship between brand advertising and pricing strategies is analysed. Price data are taken from the leading UK motor insurance comparison website, with the advantage that prices can be related to the search characteristics of consumers and to the advertising expenditure of firms. The paper finds that more-advertised firms have lower price rankings at the comparison site, indicating that advertising is informative in this market. The main result is that consumer search weakens the relationship between advertising and pricing. An implication is that increased usage of price comparison sites will make informative brand advertising less important.

Date: 2012
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DOI: 10.1080/13571516.2012.642642

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