Going Where the Ad Leads You

Tinbergen Institute Discussion Paper No. 06-075/1

22 Pages Posted: 19 Feb 2007

See all articles by Maarten Janssen

Maarten Janssen

University of Vienna - Faculty of Business, Economics, and Statistics

Marielle C. Non

University of Groningen

Date Written: August 2006

Abstract

The search literature assumes that consumers know which firms sell products they are looking for, but are unaware of the particular variety and the prices at which each firm sells. In this paper, we consider the situation where consumers are uncertain whether a firm carries the product at all by proposing a model where in the first stage firms decide on whether or not to carry the product. Firms may advertise, informing consumers not only of the price they charge, but also of the basic fact that they sell the product. In this way, advertising lowers the expected search cost. We show that this role of advertising can lead to a situation where advertised prices are higher than non—advertised prices in equilibrium.

Keywords: consumer search, informative advertising

JEL Classification: D83, L11, L13, M37

Suggested Citation

Janssen, Maarten C. W. and Non, Marielle C., Going Where the Ad Leads You (August 2006). Tinbergen Institute Discussion Paper No. 06-075/1, Available at SSRN: https://ssrn.com/abstract=963332 or http://dx.doi.org/10.2139/ssrn.963332

Maarten C. W. Janssen (Contact Author)

University of Vienna - Faculty of Business, Economics, and Statistics ( email )

Vienna, A-1210
Austria

Marielle C. Non

University of Groningen ( email )

P.O. Box 800
Groningen, 9700 AV
Netherlands

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