Working Paper: CEPR ID: DP2867
Authors: Ivan Pastine; Tuvana Pastine
Abstract: The aim of this Paper is to demonstrate that advertising can have an important function in marketswith consumption externalities, apart from its persuasive and informative roles. We show thatadvertising may function as a device to coordinate consumer expectations of the purchasingdecisions of other consumers in markets with consumption externalities. The implications ofadvertising as a coordinating device are examined in the pricing and advertising decisions of firmsinteracting strategically. While, at times, the one period advertising expense can exceed the oneperiod monopoly profit, in equilibrium consumers will pay a premium for the more heavilyadvertised brand.
Keywords: advertising; consumption externalities; coordination
JEL Codes: D62; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| advertising (M37) | consumer expectations (D84) |
| consumer expectations (D84) | sales (M31) |
| advertising (M37) | consumer choices (D10) |
| advertising efforts (M37) | market outcomes (P42) |
| advertising intensity (M37) | consumer willingness to pay (D11) |