With a Little Help from My Enemy: Comparative Advertising as a Signal of Quality
University of Bologna Working Paper No. 441
32 Pages Posted: 31 Jul 2002
Date Written: 2006
Comparative advertising content differs from generic. We discover that dissipative advertising has consequences depending upon content and cost. Comparison advertising may trigger legal action by rival firms that are named. In the model an entrant signals its product quality. By a comparative ad the entrant refers to the incumbent's product. We show that comparison can enhance the signaling potential of dissipative advertising. From the viewpoint of the entrant, the choice of comparative advertising empowers the rival with the right to sue; generic does not. Consumers therefore infer that if the entrant uses comparative instead of generic ads it has a strong case.
Keywords: Quality, signaling, advertising, entry, competition
JEL Classification: L15, M37, L13
Suggested Citation: Suggested Citation