Informative Advertising in Directed Search

Pedro Gomis-Porqueras, Benoit Julien and Wang Chengsi

MPRA Paper from University Library of Munich, Germany

Abstract: We consider a directed search environment where capacity constrained sellers reach uncoordinated buyers through costly advertising while buyers observed all prices probabilistically. We show that: (i) the equilibrium advertising intensity has an inverted U-shape in market tightness, (ii) the equilibrium advertising intensity is higher under an auction mechanism than under posted pricing, and (iii) the equilibrium price and measure of informed buyers may {be positively correlated} even in large markets.

Keywords: costly advertising; directed search; imperfect observability; sales mechanism (search for similar items in EconPapers)
JEL-codes: D83 J64 M37 (search for similar items in EconPapers)
Date: 2012-04-10
New Economics Papers: this item is included in nep-com, nep-dge, nep-ind and nep-mkt
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:38057

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