Consumption Externalities, Coordination and Advertising

54 Pages Posted: 24 Jul 2001

See all articles by Ivan Pastine

Ivan Pastine

University College Dublin - Economics Department; Bilkent University - Department of Economics; Centre for Economic Policy Research (CEPR)

Tuvana Pastine

National University of Ireland, Maynooth (NUI Maynooth) - Department of Economics, Finance and Accounting; Bilkent University - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: June 2001

Abstract

The aim of this Paper is to demonstrate that advertising can have an important function in markets with consumption externalities, apart from its persuasive and informative roles. We show that advertising may function as a device to coordinate consumer expectations of the purchasing decisions of other consumers in markets with consumption externalities. The implications of advertising as a coordinating device are examined in the pricing and advertising decisions of firms interacting strategically. While, at times, the one period advertising expense can exceed the one period monopoly profit, in equilibrium consumers will pay a premium for the more heavily advertised brand.

Keywords: Advertising, coordination, consumption externalities

JEL Classification: D62, L13

Suggested Citation

Pastine, Ivan and Pastine, Tuvana, Consumption Externalities, Coordination and Advertising (June 2001). Available at SSRN: https://ssrn.com/abstract=276775

Ivan Pastine (Contact Author)

University College Dublin - Economics Department ( email )

Belfield
Dublin 4, 4
Ireland
+353 1 716 8386 (Phone)
+353 1 283 0068 (Fax)

HOME PAGE: http://www.ucd.ie/economic/staff/ipastine/research.htm

Bilkent University - Department of Economics ( email )

06533 Ankara
Turkey
+90 312 290 1598/1955 (Phone)
+90 312 266 5140 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Tuvana Pastine

National University of Ireland, Maynooth (NUI Maynooth) - Department of Economics, Finance and Accounting ( email )

County Kildare
Ireland
+353 1 708 3934 (Fax)

HOME PAGE: http://www.nuim.ie/academic/economics/Tuvana/~tuvana1.htm

Bilkent University - Department of Economics ( email )

06533 Ankara
Turkey
+90 312 290 1598/1955 (Phone)
+90 312 266 5140 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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