This paper addresses the issue of whether firms use price or advertising to signal quality and whether advertising has pro- or anti-competitive effects. We show that, when there is price rivalry, advertising may be necessary to signal quality, in contrast to single-firm models. Signaling through price alone prevails for sufficient inter-brand quality differentials; joint price-advertising signals prevail when the quality differential is small. Finally, advertising in the form of variable rather than fixed costs is shown to increase the feasibility of signaling quality
Advertising and prices as signals of quality in a regime of price rivalry / C.D. Fluet, P.G. Garella. - In: INTERNATIONAL JOURNAL OF INDUSTRIAL ORGANIZATION. - ISSN 0167-7187. - 20:7(2002 Sep), pp. 907-930.
Advertising and prices as signals of quality in a regime of price rivalry
P.G. GarellaUltimo
2002
Abstract
This paper addresses the issue of whether firms use price or advertising to signal quality and whether advertising has pro- or anti-competitive effects. We show that, when there is price rivalry, advertising may be necessary to signal quality, in contrast to single-firm models. Signaling through price alone prevails for sufficient inter-brand quality differentials; joint price-advertising signals prevail when the quality differential is small. Finally, advertising in the form of variable rather than fixed costs is shown to increase the feasibility of signaling qualityPubblicazioni consigliate
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