Coordination in Markets with Consumption Externalities: Advertising and Product Quality

Pastine, Ivan and Pastine, Tuvana (2008) Coordination in Markets with Consumption Externalities: Advertising and Product Quality. Working Paper. UNSPECIFIED. (Unpublished)

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This paper studies advertising in markets with positive consumption externalities. In such markets, we show that firms may engage in advertising competition to coordinate consumer expectations on their own brand as long as they produce goods of similar quality. The firm with the lower quality product has a greater incentive to advertise. Hence in equilibrium, the lower quality product will often be more popular. We would like to thank James Albrecht and Curtis Taylor for their comments on a paper we presented at the North American Winter Meetings of the Econometric Society in Washington, D.C.. This paper is a direct result of the issues they raised. We would also like to acknowledge the assistance and advice of Neil Arnwine. All errors are of course our own.

Item Type: Monograph (Working Paper)
Keywords: Coordination; Markets; Consumption Externalities; Advertising; Product Quality; consumer expectations;
Academic Unit: Faculty of Science and Engineering
Faculty of Social Sciences > Economics, Finance and Accounting
Item ID: 5041
Depositing User: Tuvana Pastine
Date Deposited: 23 Jun 2014 15:51

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