Demand Expansion and Elasticity Improvement as Complementary Marketing Goals
University of Paris II Pantheon-Assas - ERMES
University of Bologna
December 16, 2010
The Manchester School, Vol. 79, Issue 1, pp. 145-158, 2010
Consider a marketing division of a monopoly that faces two marketing options: market enlargement and elasticity improvement. These options are conceived in terms of the target of the firm's advertising campaigns: potential new consumers versus existing consumers. Using a CES demand function in a simple model, we show that the two activities are complementary, so that for some cost configurations, the firm will find it profitable to jointly implement the two options together when either option alone would result in a loss. The same joint implementation conclusion also holds for consumer surplus, and hence a fortiori also under a social welfare objective.
Number of Pages in PDF File: 14
Date posted: December 30, 2010