Assisted Self-Persuasion: Advertising with Consumer Adjustment to Choice
Matthew Nagler ()
No 14, Working Papers from City University of New York Graduate Center, Ph.D. Program in Economics
I develop a new theory of persuasive advertising in which consumers rationally adjust to (i.e., improve their attitude toward) the products they choose and advertising facilitates adjustment. Advertisings price effects depend on whether marginal or inframarginal consumers are most heavily targeted, consistent with the literature. But they also depend on advertisings role as an overall adjustment intensifier, whence variation in the cost of adjustment with the strength of the consumers initial product preference determines the equilibrium price level. Whether too much or too little advertising is provided in equilibrium depends on the sign and size of advertisings price effect, the relative density of marginal consumers, and the relative extent to which advertisings adjustment cost reductions benefit marginal consumers.
Keywords: Persuasive advertising; Hotelling model; consumer decision-making; pricing; welfare (search for similar items in EconPapers)
JEL-codes: D03 D11 L10 M37 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-mic and nep-mkt
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