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Comparative and Targeted Advertising in Competitive Markets

Abstract : By its very nature, advertising is a pervasive feature of economic life. It is an increasingly important tool in strategic interactions in competitive markets. TWhether the role of advertising is to enhance the image of the product in the eyes of consumers and change their preferences, or to inform them about the release of a new product in the market, or rather to provide information on prices or qualities of existing products, an important question puzzles the economists: Why do consumers respond to advertising? As economists have struggled with this question, three views have emerged. The first view is that advertising is persuasive, that is, it alters consumers' tastes and creates spurious product differentiation and brand loyalty. As a consequence, it has no "real" value to consumers, but rather induces artificial product differentiation. The second view is that advertising is informative. According to this approach, many markets are characterized by imperfect consumer information, since search costs may deter a consumer from learning of each product's existence, price and quality. Advertising is the endogenous response that the market offers as a solution: when a firm advertises, consumers receive information. The third view is that advertising is complementary to the advertised product. According to this perspective, advertising does not change consumers' preferences, as in the persuasive view; furthermore, it may, but need not, provide information. Instead, it is assumed that consumers possess a stable set of preferences into which advertising enters directly in a fashion that is complementary with the consumption of the advertised product
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Contributor : Ecole Ensae Paristech <>
Submitted on : Thursday, May 28, 2009 - 8:00:00 AM
Last modification on : Tuesday, April 2, 2019 - 2:25:15 AM
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  • HAL Id : pastel-00005167, version 1

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Joanna Pousset. Comparative and Targeted Advertising in Competitive Markets. Sciences de l'Homme et Société. ENSAE ParisTech, 2008. Français. ⟨pastel-00005167⟩

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