Informative Advertising with Differentiated Products

Grossman, Gene M.; Shapiro, Carl

doi:10.2307/2297705

Cited by 620 publications

(699 citation statements)

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“…Consequently, equilibrium profits decrease (and at the limit they tend to zero) and firms are then less willing to advertise given that such an activity requires a fixed cost. This behavior is consistent with the findings of Grossman and Shapiro (1984) inter alia. Turning to the asymmetric situation where just one firm advertises, the net effect of a change in c is instead quite ambiguous.…”

Section: F Urther Results and Economic Interpretationssupporting

confidence: 93%

“…Furthermore, price competition is a more natural assumption in a market where products are differentiated. Grossman and Shapiro (1984), for example, consider a differentiation duopoly model with price competition and show that advertising is positively related to the degree of product differentiation. Other advertising models dealing with these two features can be found in Butters (1977), Wolinsky (1984) and von der Fehr and Stevik (1998).…”

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confidence: 99%

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Advertising and endogenous exit in a differentiated duopoly

Mantovani¹,

Mion²

2006

Recherches Économiques De Louvain

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Section: F Urther Results and Economic Interpretationssupporting

confidence: 93%

mentioning

confidence: 99%

Advertising and endogenous exit in a differentiated duopoly

Mantovani¹,

Mion²

2006

Recherches Économiques De Louvain

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“…He continues to point out that "[t]he identification of buyers and sellers reduces drastically the cost of search" (ibid. ), which has given rise to a rich literature on how much firms should spend on advertising (Butters 1977, Stegeman 1991) and how informative advertising should be (Shapiro 1982, Grossman andShapiro 1984). Stiglitz (1989) provides an excellent overview of the classical literature on search in product markets with imperfect information.…”

Section: Literature Reviewmentioning

confidence: 99%

A Model of Search Intermediaries and Paid Referrals

Weber

Zheng

2006

SSRN Journal

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I n this paper we pursue three main objectives: (1) to develop a model of an intermediated search market in which matching between consumers and firms takes place primarily via paid referrals; (2) to address the question of designing a suitable mechanism for selling referrals to firms; and (3) to characterize and analyze the firms' bidding strategies given consumers' equilibrium search behavior. To achieve these objectives we develop a two-stage model of search intermediaries in a vertically differentiated product market. In the first stage an intermediary chooses a search engine design that specifies to which extent a firm's search rank is determined by its bid and to which extent it is determined by the product offering's performance. In the second stage, based on the search engine design, competing firms place their open bids to be paid for each referral by the search engine. We find that the revenue-maximizing search engine design bases rankings on a weighted average of product performance and bid amount. Nonzero pure-strategy equilibria of the underlying discontinuous bidding game generally exist but are not robust with respect to noisy clicks in the system. We determine a unique nondegenerate mixed-strategy Nash equilibrium that is robust to noisy clicks. In this equilibrium firms of low product performance fully dissipate their rents, which are appropriated by the search intermediary and the firm with the better product. The firms' expected bid amounts are generally nonmonotonic in product performance and depend on the search engine design parameter. The intermediary's profit-maximizing design choice, by attributing a positive weight to the firms' bids, tends to obfuscate search results and reduce overall consumer surplus compared to the socially optimal design of fully transparent results ranked purely on product performance.

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“…289] 290 labels these as the ''partial'' view versus the ''adverse'' view of advertising. For models dealing explicitly with the informational effects of advertising, ( ) ( ) see Butters 1977 andGrossman andShapiro 1984 . 5. This is similar to the oft-cited distinction between ''search'' goods and ''experience'' goods, although not identical, since regular shows have features common to both types of goods.…”

Section: Introductionmentioning

confidence: 99%