Price Competition and Advertising Signals - Softcover

Federal Trade Commission

Softcover

ISBN 10: 1530892406 ISBN 13: 9781530892402

Publisher: CreateSpace Independent Publishing Platform, 2016

Synopsis

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.

Edition details

• Publisher: CreateSpace Independent Publishing Platform
• Publication date: 2016
• Language: English
• ISBN 10: 1530892406
• ISBN 13: 9781530892402
• Binding: Paperback
• Number of pages: 48
• Editor: Penny Hill Press