Advertising for attention in a consumer search model

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Abstract

We model the idea that when consumers search for products, they first visit the firm whose advertising is most salient. The gains a firm derives from being visited early increase in search costs, so equilibrium advertising increases as search costs rise. As a result, higher search costs may decrease both consumer welfare and firm profits. We extend the basic model by allowing for firm heterogeneity in advertising costs. Firms that raise attention more easily advertise more but also charge lower prices and obtain higher profits. As advertising cost asymmetries increase, consumer surplus falls and aggregate profits rise.

Original languageEnglish
Pages (from-to)552-579
Number of pages28
JournalEconomic Journal
Volume121
Issue number552
DOIs
Publication statusPublished - May-2011

Keywords

  • ORDERED SEARCH
  • RENT-SEEKING
  • COMPETITION
  • INFORMATION
  • INTERFERENCE
  • CONTEST
  • MEMORY
  • SALES
  • COSTS

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