Equilibrium Price and Advertisement Distributions

38 Pages Posted: 13 Nov 2019 Last revised: 13 Sep 2021

See all articles by Klaus Kultti

Klaus Kultti

University of Helsinki, Department of Political and Economic Studies

Teemu Pekkarinen

Massachusetts Institute of Technology (MIT)

Date Written: May 26, 2021

Abstract

We consider an economy where many sellers sell identical goods to many buyers. Each seller has a unit supply and each buyer has a unit demand. The only possible information flow about prices is through costly advertising. We show that in equilibrium the sellers use mixed strategies in pricing which leads to price and advertisement distributions. With convex advertising costs each seller sends only one advertisement in the market. We also delineate a class of advertising costs which ensures that sellers may send multiple advertisements in equilibrium. Higher prices are advertised more than lower prices.

Keywords: Advertising, Price Distributions

JEL Classification: D41, D47

Suggested Citation

Kultti, Klaus and Pekkarinen, Teemu, Equilibrium Price and Advertisement Distributions (May 26, 2021). Available at SSRN: https://ssrn.com/abstract=3479074 or http://dx.doi.org/10.2139/ssrn.3479074

Klaus Kultti

University of Helsinki, Department of Political and Economic Studies ( email )

Teemu Pekkarinen (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

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

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