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Strategic advertising and directed search

journal contribution
posted on 2017-08-01, 00:00 authored by P Gomis-Porqueras, B Julien, C Wang
Imperfect observability and costly informative advertising are introduced into a standard directed search framework. Capacity-constrained sellers send costly advertisements to direct buyers' uncoordinated search by specifying their location and terms of trade. We show that the equilibrium advertising intensity is nonmonotonic in the buyer–seller ratio. In addition, we also find that price posting dominates auctions since both mechanisms yield the same expected revenue, but the latter results in higher advertising expense. Finally, we find a positive comovement between market transparency and price for low market tightness when the measure of informed buyers is endogenous.

History

Journal

International economic review

Volume

58

Pagination

783-806

Location

Chichester, Eng.

ISSN

0020-6598

eISSN

1468-2354

Language

eng

Publication classification

C1 Refereed article in a scholarly journal, C Journal article

Copyright notice

2017, Economics Department of the University of Pennsylvania and the Osaka University of Social and Economic Research Association

Issue

3

Publisher

Wiley-Blackwell

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