Working Paper: CEPR ID: DP7109
Authors: Winand Emons; Claude Fluet
Abstract: Two firms produce a product with a horizontal and a vertical characteristic. We call the vertical characteristic quality. The differencein the quality levels determines how the firms share the market. Firms know the quality levels, consumers do not. Under non-comparative advertising a firm may signal its own quality. Under comparative advertising firms may signal the quality differential. In both scenarios the firms may attempt to mislead at a cost. If firms advertise, in both scenarios equilibria are revealing. Under comparative advertising the firms never advertise together which they may do under non-comparative advertising.
Keywords: advertising; costly state falsification; signalling
JEL Codes: D82; K41; K42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Noncomparative advertising (L49) | firm quality signaling (G32) |
| firm quality signaling (G32) | consumer expectations about quality levels (L15) |
| Noncomparative advertising (L49) | market share (L17) |
| Noncomparative advertising (L49) | misleading consumers about quality (L15) |
| misleading consumers about quality (L15) | cost associated with advertising (M37) |
| Comparative advertising (M38) | quality differential signaling (L15) |
| quality differential signaling (L15) | consumer perceptions (D18) |
| Comparative advertising (M38) | market dynamics (D49) |
| Comparative advertising (M38) | market efficiency (G14) |
| advertising type (M37) | consumer information (D18) |
| advertising type (M37) | resource allocation (H61) |