Price Competition and Advertising Signals

By:

Federal Trade Commission

Format:

Paperback / softback

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Description

Can price and advertising be used by vertically differentiated duopolists to signal qualities to consumers? We show that pure price separation is impossible if the vertical differentiation is small, while adding dissipative advertising ensures existence of separating equilibria. Two simple, but non-standard, equilibrium refinements are introduced to deal with the multi-sender nature of the game, and they are shown to produce a unique separating and a unique pooling profile. Pooling results in a zero-profit Bertrand outcome. Separation gives strictly positive duopoly profits, and dissipative advertising is used by the high-quality firm when products are sufficiently close substitutes. Finally, depending on the differentiation, the separating prices of both firms may be distorted upwards or downwards compared to the complete information benchmark.

Release date NZ

April 5th, 2016

Author

Federal Trade Commission

Audience

General (US: Trade)

Contributor

Edited by Penny Hill Press

Pages

Dimensions

216x280x3

ISBN-13

9781530892402

Product ID

37588760

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