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COORDINATION IN MARKETS WITH CONSUMPTION EXTERNALITIES: THE ROLE OF ADVERTISING AND PRODUCT QUALITY
Category: Economic Theory
Industrial Organisation III Monday 26th August 2002, 14:30 - 16:00, Room: 4.6
Session Chair(s):
Marie-Elise Dumans, CREST-LEI, FRANCE
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Abstract:
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In markets with consumption externalities, Pastine and Pastine (International Economic Review, forthcoming) shows that firms may advertise in order to coordinate consumer expectations on their own brand. In this paper, we extend the analysis by allowing firms to produce goods of different quality. Firms will advertise to coordinate expectations only as long as they produce goods of similar quality. The firm with the lower quality product will have a greater incentive to advertise. Hence, in equilibrium, as long as quality difference is not too drastic, consumers will more often coordinate on the low quality product
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Find this file in the \Papers\461\ folder of this CD-ROM.
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