nep-mkt New Economics Papers
on Marketing
Issue of 2012‒03‒28
six papers chosen by
Joao Carlos Correia Leitao
University of Beira Interior and Technical University of Lisbon

  1. Who Benefits from Misleading Advertising? By Keisuke Hattori; Keisaku Higashida
  2. The advertising mix for a search good By Anderson, Simon P.; Renault, Régis
  3. Deal or No Deal? Licensing Negotiations in Standard-Setting Organizations By Gilbert, Richard J.
  4. A more general theory of commodity bundling By Armstrong, Mark
  5. You Get a Book! Demand Spillovers, Combative Advertising, and Celebrity Endorsements By Craig L. Garthwaite
  6. Getting The Right Spin: A Theory Of Optimal Viral Marketing By Pier-André Bouchard St-Amant

  1. By: Keisuke Hattori (Faculty of Economics, Osaka University of Economics); Keisaku Higashida (School of Economics, Kwansei Gakuin University)
    Abstract: We develop a Hotelling model of horizontally and vertically differentiated brands with misleading advertising competition. We investigate the question of who benefits or loses from the misinformation created by advertising competition and related regulatory policies. We show that the quality gaps between two brands are crucial for determining the effect of misinformation on the firms’ profits, aggregate or individual consumer surplus, and national welfare. Although the misinformation tricks consumers into buying products that they would not have purchased otherwise, it may improve welfare even if the advertising does not expand the overall demand for the brands. We also show that, although endogenous advertising competition may lead to a prisoner’s dilemma for firms, it makes some consumers better off. We also consider the effects of several regulatory policies, such as advertising taxes, ad valorem and unit taxes on production, comprehensive and partial prohibitions of misleading advertising, government provisions of quality certification or counter-information, and the education of consumers.
    Keywords: Misinformation, Advertising Competition, Regulation, Product Differentiation
    Date: 2012–03
  2. By: Anderson, Simon P.; Renault, Régis
    Abstract: We extend the persuasion game to bring it squarely into the economics of advertising. We model advertising as exciting consumer interest into learning more about the product, and determine a firm's equilibrium choice of advertising content over quality information, price information, and horizontal match information. Equilibrium is unique whenever advertising is necessary. The outcome is a separating equilibrium with quality unravelling. Lower quality firms need to provide more information. For a given quality level, as a function of consumer visit costs, first quality information is disclosed, then price information and then horizontal product information are added to the advertising mix. Some suggestive evidence is provided from airline ads in newspapers.
    Keywords: advertising; content analysis; information; persuasion game; search
    JEL: D42 L15 M37
    Date: 2012–01
  3. By: Gilbert, Richard J.
    Abstract: Technical standards benefit consumers and producers by facilitating productadoption, promoting compatible solutions, and helping to create anecosystem of products and services in which competition can thrive. However,standards also may create opportunities for the exercise of market power. Owners of patents with claims that are essential to a standard may “hold up†firms or consumers that are “locked-in†to a standard by charging high royalties for the use of products that comply with the standard. This licensor (or seller) market power3 arises “ex post,†i.e., after firms and consumers have made investments that are specific to the standard.
    Keywords: Business, Management, Marketing, and Related Support Services, Legal Professions and Studies, Intellectual Property Law, Economics
    Date: 2011–12–01
  4. By: Armstrong, Mark
    Abstract: This paper extends the standard model of bundling as a price discrimination device to allow products to be substitutes and for products to be supplied by separate sellers. Whether integrated or separate, firms have an incentive to introduce a bundling discount when demand for the bundle is elastic relative to demand for stand-alone products. Product substitutability typically gives an integrated firm a greater incentive to offer a bundle discount (relative to the model with additive preferences), while substitutability is often the sole reason why separate sellers wish to offer inter-firm discounts. When separate sellers coordinate on an inter-firm discount, they can use the discount to overturn product substitutability and relax competition.
    Keywords: Price discrimination; bundling; oligopoly
    JEL: L13 D82 D4
    Date: 2012–03
  5. By: Craig L. Garthwaite
    Abstract: This paper studies the economic effects of endorsements. In the publishing sector, endorsements from the Oprah Winfrey Book Club are found to be a business stealing form of advertising that raises title level sales without increasing the market size. The endorsements decrease aggregate adult fiction sales; likely as a result of the endorsed books being more difficult than those that otherwise would have been purchased. Economically meaningful sales increases are also found for non-endorsed titles by endorsed authors. These spillover demand estimates demonstrate a broad range of benefits from advertising for firms operating in a multiproduct brand setting.
    JEL: D20 D22 I2 L0 L1 L2 L8
    Date: 2012–03
  6. By: Pier-André Bouchard St-Amant (Queen's Economics Department)
    Abstract: I develop a theoretical framework for studying viral communications through a principal agent set-up. The principal derives wealth from a signal in a society while agents in the society talk to each other. A society is likely to create a viral bubble if there is a short loop of positive reinforcement of the message. If the society is in a steady state or if the principal is impatient, she is more likely to use widespread marketing strategies yielding a weaker effect. If the society is out of the steady-state and if she is patient, she will however prefer a viral communication strategy with stronger effects. All in all, the model suggests that the way information is spread matters in transitionary dynamics of an economy. Examples of applications are straight marketing campaigns on a web network, optimal announcement rules for central banks as well as a new framework to understand economic fluctuations.
    Keywords: Networks, Viral Communication
    JEL: D83 D85
    Date: 2012–03

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