Informative Advertising in Directed Search

Pedro Gomis-Porqueras, Benoit Julien and Chengsi Wang

No 2012-26, Discussion Papers from School of Economics, The University of New South Wales

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: E52 E63 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2012-04
New Economics Papers: this item is included in nep-com, nep-dge and nep-mac
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Working Paper: Informative Advertising in Directed Search (2012)
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