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DEMAND EXPANSION AND ELASTICITY IMPROVEMENT AS COMPLEMENTARY MARKETING GOALS
Author(s) -
HALMENSCHLAGER CHRISTINE,
MANTOVANI ANDREA,
TROEGE MICHAEL
Publication year - 2011
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2010.02181.x
Subject(s) - economics , economic surplus , price elasticity of demand , monopoly , microeconomics , consumer welfare , consumer demand , elasticity (physics) , welfare , social welfare , deadweight loss , marketing , business , market economy , materials science , composite material , political science , law
Consider a marketing division of a monopoly that faces two marketing options: market enlargement and elasticity improvement. These options are conceived in terms of the target of the firm's advertising campaigns: potential new consumers versus existing consumers. Using a CES demand function in a simple model, we show that the two activities are complementary, so that for some cost configurations, the firm will find it profitable to jointly implement the two options together when either option alone would result in a loss. The same joint implementation conclusion also holds for consumer surplus, and hence a fortiori also under a social welfare objective.