COORDINATION IN MARKETS WITH CONSUMPTION EXTERNALITIES: ADVERTISING AND PRODUCT QUALITY

COORDINATION IN MARKETS WITH CONSUMPTION EXTERNALITIES: ADVERTISING AND PRODUCT QUALITY

In this paper we study advertising in markets with positive consumption externalities. In such markets, we show that firms may engage in advertising competition to coordinate consumer expectations on their own brand as long as they produce goods of similar quality. The firm with the lower‐quality pr...

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Veröffentlicht in:The Manchester school 2011-01, Vol.79 (1), p.45-62
Hauptverfasser: PASTINE, IVAN, PASTINE, TUVANA
Format: Artikel
Sprache:eng
Schlagworte:
Advertising
Competition
Consumption
Consumption theory
Coordination
Externalities
Externality
Industrial organization
Market theory
Product quality
Signalling
Studies
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Zusammenfassung:In this paper we study advertising in markets with positive consumption externalities. In such markets, we show that firms may engage in advertising competition to coordinate consumer expectations on their own brand as long as they produce goods of similar quality. The firm with the lower‐quality product has a greater incentive to advertise. Hence in equilibrium, the lower‐quality product will often be more popular.
ISSN:1463-6786
1467-9957
DOI:10.1111/j.1467-9957.2010.02186.x