Advertising for Consideration

Posted: 9 May 2017 Last revised: 27 Nov 2018

See all articles by Carmen Astorne-Figari

Carmen Astorne-Figari

University of Memphis - Economics

Joaquín López

University of Memphis - Economics

Aleksandr Yankelevich

Federal Communications Commission

Date Written: June 1, 2017

Abstract

We analyze markets where firms competing on price advertise to increase the probability of entering consumers’ consideration sets. We find that moderately costly advertising allows firms to raise prices and possibly profits by reducing the fraction of price-conscious consumers, and by segmenting the market according to whether or not consumers consider the lower priced firm. However, when the cost of advertising is sufficiently low, advertising leads to a prisoners’ dilemma that adversely impacts profits without affecting expected prices.

Keywords: Advertising, Bounded Rationality, Consideration Sets, Limited Attention, Oligopoly, Price Dispersion

JEL Classification: D03, D21, D43, L13, M37

Suggested Citation

Astorne-Figari, Carmen and López, José and Yankelevich, Aleksandr, Advertising for Consideration (June 1, 2017). Journal of Economic Behavior and Organization, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2964298

Carmen Astorne-Figari

University of Memphis - Economics ( email )

Memphis, TN 38152-3370
United States

HOME PAGE: http://www.carmenastorne.com

José López

University of Memphis - Economics ( email )

Memphis, TN 38152
United States

HOME PAGE: http://joaquinlopezecon.com/

Aleksandr Yankelevich (Contact Author)

Federal Communications Commission ( email )

445 12th Street SW
Rm. TW-B204
Washington, DC 20554
United States

HOME PAGE: http://https://aleksyankelevich.com/

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