CHAPTER 4
Advertising in Markets
Régis Renault
PSL, Universite
´
Paris Dauphine, LEDa, Paris, France
Contents
4.1. Introduction 122
4.2. Search and Advertising 127
4.2.1 Stigler's Question 127
4.2.2 Diamond's Question 128
4.2.3 Price Advertising and Price Dispersion 131
4.2.4 Too Much or Too Little Advertising? 134
4.2.5 Price Advertising with Product Differentiation 137
4.2.6 Concluding Remarks 142
4.3. Product Advertising 143
4.3.1 Nelson's Question 143
4.3.2 Empirical Evidence on Advertising Content 144
4.3.3 Match Advertising 146
4.3.3.1 Direct Information About Experience Goods 147
4.3.3.2 Search Goods and Advertising Content 151
4.3.4 Advertising of Product Attributes 154
4.3.4.1 Unraveling of Quality Information 155
4.3.4.2 Disclosure of Horizontal Match Attributes 156
4.3.4.3 Competition and Disclosure of Product Attributes 159
4.3.5 Misleading Advertising 161
4.3.5.1 Cheap Talk 162
4.3.5.2 Imperfect Enforcement of Laws on Misleading Advertisements 163
4.3.6 Concluding Remarks 165
4.4. Advertising as a Signal 166
4.4.1 Nelson Again 166
4.4.2 Quality Signaling and Money Burning 168
4.4.2.1 Static Quality Signaling 168
4.4.2.2 Repeat Purchase and Money Burning 171
4.4.3 Advertising and Coordination 173
4.4.4 Concluding Remarks 175
4.5. Advertising Technology 176
4.5.1 Advertising Costs 177
4.5.1.1 Advertising Costs and Reach 177
4.5.1.2 Disclosure Costs 178
4.5.2 Targeted Advertising 180
4.5.3 Information Congestion 182
4.5.4 Concluding Remarks 183
121
Handbook of Media Economics,Volume1A © 2016 Elsevier B.V.
ISSN 2213-6630,
http://dx.doi.org/10.1016/B978-0-444-62721-6.00004-4 All rights reserved.
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