Consumption Externalities, Coordination and Advertising

Tuvana Pastine and Ivan Pastine

No 2867, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: The aim of this Paper is to demonstrate that advertising can have an important function in markets with consumption externalities, apart from its persuasive and informative roles. We show that advertising may function as a device to coordinate consumer expectations of the purchasing decisions of other consumers in markets with consumption externalities. The implications of advertising as a coordinating device are examined in the pricing and advertising decisions of firms interacting strategically. While, at times, the one period advertising expense can exceed the one period monopoly profit, in equilibrium consumers will pay a premium for the more heavily advertised brand.

Keywords: Advertising; Coordination; Consumption externalities (search for similar items in EconPapers)
JEL-codes: D62 L13 (search for similar items in EconPapers)
Date: 2001-06
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Comsumption Externalities, Coordination, and Advertising (2002)
Working Paper: Consumption externalities, coordination and advertising (2001)
Working Paper: Consumption Externalities, Coordination and Advertising (2000)
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