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Title: Informative Advertising and Product Differentiation

Author(s): Charalambos Christou and Nikolaos Vettas

Publication Date: June 2003

Keyword(s): informative advertising, non-localized competition, product differentiation and random utility

Programme Area(s): Industrial Organization

Abstract: We study informative advertising within a random-utility, non-localized competition model of product differentiation. In a symmetric equilibrium, advertisement is sub-optimal when product differentiation is small, and excessive otherwise. Increasing the number of firms may increase or decrease the market price. We emphasise that quasi-concavity of profits may fail, as firms may prefer a high price deviation, targeting consumers that only become informed about their product (a feature that, while present in earlier models of informative advertising, has not received enough attention). As product differentiation becomes small, a symmetric equilibrium does not exist.

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Bibliographic Reference

Christou, C and Vettas, N. 2003. 'Informative Advertising and Product Differentiation'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3953