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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
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http://hdl.handle.net/10419/26355
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| Title: | | Dissipative advertising signals quality even without repeat purchases  |
| Authors: | | Linnemer, Laurent |
| Issue Date: | | 2008 |
| Series/Report no.: | | CESifo working paper 2310 |
| Abstract: | | Economists have emphasized the role of dissipative advertising and price as signals of quality. Most works, however, limit the number of types to two options: high and low quality. Yet, production costs and quality both result from R&D efforts and therefore are both uncertain. I characterize the optimal separating marketing mix (price and advertising) when quality and marginal cost are both subject to chance. In a static framework (no repeat purchases and no informed consumers), advertising appears to be necessary together with price to signal quality. Equilibrium profits depend on cost but not on quality: all rents are dissipated for signaling purpose. |
| Subjects: | | quality signaling dissipative advertising |
| JEL: | | L12 L15 M37 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CESifo Working Papers, CESifo Group Munich
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