Beiträge zur Jahrestagung des Vereins für Socialpolitik 2011: Die Ordnung der Weltwirtschaft: Lektionen aus der Krise - Session: Advertising and Marketing Campaigns D12-V3
Two firms produce a product with a horizontal and a vertical characteristic that we call quality. The difference in the quality levels determines how the firms share the market. Consumers do not observe quality before purchase. Under non-comparative advertising a firm signals its own quality, under comparative advertising a firm signals the quality differential. In both scenarios firms may boast at a cost. In equilibrium firms actually do so, but consumers rationally infer the true quality if firms advertise. Under comparative advertising the firms never advertise together which they may do under non-comparative advertising.