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STRATEGIC ADVERTISING AND DIRECTED SEARCH
Author(s) -
GomisPorqueras Pedro,
Julien Benoit,
Wang Chengsi
Publication year - 2017
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12235
Subject(s) - transparency (behavior) , common value auction , informative advertising , microeconomics , imperfect , observability , advertising , yield (engineering) , economics , revenue , search advertising , perfect information , online advertising , business , computer science , native advertising , mathematics , the internet , linguistics , philosophy , materials science , computer security , accounting , world wide web , metallurgy
Imperfect observability and costly informative advertising are introduced into a standard directed search framework. Capacity‐constrained sellers send costly advertisements to direct buyers' uncoordinated search by specifying their location and terms of trade. We show that the equilibrium advertising intensity is nonmonotonic in the buyer–seller ratio. In addition, we also find that price posting dominates auctions since both mechanisms yield the same expected revenue, but the latter results in higher advertising expense. Finally, we find a positive comovement between market transparency and price for low market tightness when the measure of informed buyers is endogenous.