Dissipative Advertising Signals Quality even without Repeat Purchases

Laurent Linnemer

No 2310, CESifo Working Paper Series from CESifo

Abstract: Economists have emphasized the role of dissipative advertising and price as signals of quality. Most works, however, limit the number of types to two options: high and low quality. Yet, production costs and quality both result from R&D efforts and therefore are both uncertain. I characterize the optimal separating marketing mix (price and advertising) when quality and marginal cost are both subject to chance. In a static framework (no repeat purchases and no informed consumers), advertising appears to be necessary together with price to signal quality. Equilibrium profits depend on cost but not on quality: all rents are dissipated for signaling purpose.

Keywords: quality; signaling; dissipative advertising (search for similar items in EconPapers)
JEL-codes: L12 L15 M37 (search for similar items in EconPapers)
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp2310.pdf (application/pdf)

Related works:
Working Paper: Dissipative Advertising Signals Quality Even Without Repeat Purchases (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_2310

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().