@techreport{Goeree2004Advertising,
abstract = {Traditional models of consumer choice assume consumers are aware of all products for sale.
This assumption is questionable, especially when applied to markets characterized by a high
degree of change, such as the personal computer (PC) industry. I present an empirical
discrete-choice model of limited information on the part of consumers, where advertising
influences the set of products from which consumers choose to purchase. Multi-product
firms choose prices and advertising in each medium to maximize their profits. I apply the
model to the US PC market, in which advertising expenditures are over $2 billion annually.
The estimation technique incorporates macro and micro data from three sources. Estimated
median industry markups are 19% over production costs. The high industry markups
are explained in part by the fact that consumers know only some of the products for sale.
Indeed estimates from traditional consumer choice models predict median markups of onefourth
this magnitude. I find that product-specific demand curves are biased towards being
too elastic under traditional models of consumer choice. The estimates suggest that PC
firms use advertising media to target high-income households, that there are returns to scope
in group advertising, and that word-of-mouth or experience plays a role in informing consumers.
The top firms engage in higher than average advertising and earn higher than
average markups.},
author = {Michelle S. Goeree},
copyright = {http://www.econstor.eu/dspace/Nutzungsbedingungen},
keywords = {L15; L63; M37; D21; D12; 330; Advertising; information; discrete choice models; product differentiation; personal computer industry; PC-Industrie; Werbung; Preiselastizit\"{a}t; Konsumentenverhalten; Produktdifferenzierung; Diskrete Entscheidung; Vereinigte Staaten},
language = {eng},
number = {04,09},
title = {Advertising in the U.S. Personal Computer Industry},
type = {Working paper series / Claremont McKenna College},
url = {http://hdl.handle.net/10419/23396},
year = {2004}
}
