Advertising and Coordination
Kyle Bagwell,Garey Ramey +1 more
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In this article, the authors provide a theoretical explanation for Benham's empirical association of the ability to advertise with lower prices and larger scale, and show that advertising becomes necessary for optimal coordination when the identity of the efficient firm is uncertain.Abstract:
When market information such as price is difficult to communicate, consumers and firms may be unable to take advantage of mutually beneficial scale economies, so that coordination failures arise. Ostensibly uninformative advertising expenditures can be used to eliminate coordination failures, by allowing an efficient firm to communicate implicitly that it offers a low price. This provides a theoretical explanation for Benham's (1972) empirical association of the ability to advertise with lower prices and larger scale. Advertising becomes necessary for optimal coordination when the identity of the efficient firm is uncertain. An application to loss-leader pricing is developed.read more
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Journal ArticleDOI
Information and Consumer Behavior
TL;DR: In this article, the authors argue that consumers lack full information about the prices of goods, but their information is probably poorer about the quality variation of products simply because the latter information is more difficult to obtain.
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The Role of Market Forces in Assuring Contractual Performance
Benjamin Klein,Keith B. Leffler +1 more
TL;DR: The conditions under which transactors can use the market (repeat-purchase) mechanism of contract enforcement are examined in this article, where increased price is shown to be a means of assuring contractual performance.
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Signaling Games and Stable Equilibria
In-Koo Cho,David M. Kreps +1 more
TL;DR: In this paper, the authors present a number of formal restrictions of this sort, investigate their behavior in specific examples, and relate these restrictions to Kohlberg and Mertens' notion of stability.
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Advertising as Information
TL;DR: In this paper, the major features of the behavior of advertising can be explained by advertising's information function, and it is shown that the most important information conveyed by advertising is simply that the brand advertises.