Friday, June 24, 2011
Posted by D. Daniel Sokol
Stefan Buehler (University of St. Gallen) and Daniel Halbheer (University of Zurich Department of Business Administration) are writing on Persuading Consumers With Social Attitudes.
ABSTRACT: This paper analyzes persuasive advertising and pricing in oligopoly if firms sell differentiated products and consumers have heterogenous social attitudes towards the consumption by others. Deriving product demand from primitives, we show that the demand-enhancing effect of persuasive advertising varies across consumers and increases in the average degree of conformity. In equilibrium, both quality and cost leaders choose higher advertising intensities and charge higher prices than their competitors. In addition, we show that an increase in the average degree of conformity among consumers reinforces asymmetries between firms.