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Informative Advertising Competition[Note 1. I thank the editor, Severin Borenstein, and two referees ...]
Author(s) -
LeBlanc Greg
Publication year - 1998
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/1467-6451.00061
Subject(s) - duopoly , informative advertising , advertising , competition (biology) , outcome (game theory) , microeconomics , product (mathematics) , business , economics , social welfare , welfare , online advertising , native advertising , cournot competition , the internet , mathematics , computer science , market economy , ecology , geometry , world wide web , political science , law , biology
This paper investigates informative price advertising in an established‐product Hotelling duopoly where firms compete for shares of a fixed market. Prices are uncertain because firms’ costs are private information. For a sufficiently low cost of advertising, advertising necessarily arises in equilibrium. Also, the less balanced the initial distributions over costs, the greater the potential for informative advertising. Moreover, whenever firms use informative advertising, it increases the firms’ expected profits, and social welfare, relative to the outcome without advertising.