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Comparative advertising: disclosing horizontal match information
Author(s) -
Anderson Simon P.,
Renault Régis
Publication year - 2009
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/j.1756-2171.2009.00077.x
Subject(s) - profitability index , matching (statistics) , economic surplus , quality (philosophy) , advertising , business , consumer welfare , information asymmetry , welfare , consumer information , economics , marketing , microeconomics , market economy , philosophy , statistics , mathematics , finance , epistemology
Improved consumer information about horizontal aspects of products of similar quality leads to better consumer matching but also to higher prices, so consumer surplus can go up or down, while profits rise. With enough quality asymmetry, though, the higher‐quality (and hence larger) firm's price falls with more information, so both effects benefit consumers. This occurs when comparative advertising is used against a large firm by a small one. Comparative advertising, as it imparts more information, therefore helps consumers. Although it also improves the profitability of the small firm, overall welfare goes down because of the large loss to the attacked firm.