14 Pages Posted: 30 Dec 2010
Date Written: December 16, 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.
Suggested Citation: Suggested Citation
Halmenschlager, Christine and Mantovani, Andrea and Troege, Michael, Demand Expansion and Elasticity Improvement as Complementary Marketing Goals (December 16, 2010). The Manchester School, Vol. 79, Issue 1, pp. 145-158, 2010. Available at SSRN: https://ssrn.com/abstract=1732458 or http://dx.doi.org/10.1111/j.1467-9957.2010.02181.x
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