TITLE

Endogenous direct advertising and price competition

AUTHOR(S)
Esteban, Lola; Hernández, José
PUB. DATE
July 2014
SOURCE
Journal of Economics;Jul2014, Vol. 112 Issue 3, p225
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
This paper analyzes how the use of endogenous direct advertising affects the functioning of a horizontally-differentiated market. We formulate a two-stage game of pricing and informative advertising in which two firms, first, compete with mass advertising and, later, build a database using their historical sales records and compete by directly targeting the ads on their potential customers. We show that, compared to the case where firms only use mass advertising, direct advertising yields higher advertising efforts and an intertemporal reallocation of both market power and profits from the first to the second period. We also find that targeting increases the overall firms' profit and the level of social welfare, but the impact on the average intertemporal price and consumer surplus is ambiguous. Finally, when reaching the potential market with mass advertising is sufficiently expensive, the use of direct advertising leads firms to provide the socially optimal level of advertising whereas, if mass advertising is cheap, firms tend to launch too little advertising in the first period and too much in the second.
ACCESSION #
96538142

 

Related Articles

  • Why direct mail marketing still matters in the digital age. Scott, Dave // Direct Marketing News;Jan2012 Essential Guide, p10 

    The article offers the author's insights on the aspects of direct mail marketing which makes it significant in the digital marketing age such as its engagement as a physical object, deliverability and creativity.

  • Double Marginalization in Performance-Based Advertising: Implications and Solutions. Dellarocas, Chrysanthos // Management Science;Jun2012, Vol. 58 Issue 6, p1178 

    An important current trend in advertising is the replacement of traditional pay-per-exposure (pay-per-impression)pricing models with performance-based mechanisms in which advertisers pay only for measurable actions by consumers. Such pay-per-action (PPA) mechanisms are becoming the predominant...

  • 10 Steps To Boost Direct-Mail Profits.  // Entrepreneur;Jun97, Vol. 25 Issue 6, p92 

    Lists steps to ensure profits from direct-mail efforts in marketing one's products.

  • Third-Degree Price Discrimination in the Presence of Asymmetric Consumption Externalities. Ikeda, Takeshi; Nariu, Tatsuhiko // Journal of Industry, Competition & Trade;Sep2009, Vol. 9 Issue 3, p251 

    In this paper, we consider third-degree price discrimination in two markets in the presence of asymmetric consumption externalities; we establish that under plausible conditions, a firm reduces its price in the market with low price elasticity of demand. The firm can increase its profits by...

  • The Good, the Bad and the Pretty? Latz, Ayal // Response;Oct2012, Vol. 21 Issue 1, p42 

    The article explores the three options if a return is going to happen from a marketer's perspective. It discusses the significance of a well-thought-out strategy and procedure for dealing returns in reducing returns, lowering costs, and creating revenue source. It suggests to anticipate reasons...

  • Report: Direct Mail Response Rates Down, But Much Better Than Digital Channels. Tierney, Jim // Multichannel Merchant Exclusive Insight;6/14/2012, p1 

    The article discusses a decline in direct mail response rates in the U.S., according to the 2012 Response Rate Report released by the Direct Marketing Association. The report revealed that mail campaigns still hold an edge over digital channels despite the decline. It noted the falling...

  • The State of the Political Industry. HESLA, MAREN; LEIBOWITZ, AARON; PEAVEY, ED // Campaigns & Elections (2010);May/Jun2013, Issue 318, p24 

    The article discusses the indispensability of direct mail as a tool in reaching out to voters due to its elements of individualization and personalization. Also discussed are improved data quality due to advancement of modeling which offers higher rate of successful direct mail delivery, the...

  • A LEAD-GENERATION TIP-SHEET. Lerose, Robert // Folio: The Magazine for Magazine Management;Super Book 2011, p13 

    The article focuses on the use of lead generation promotion for marketing. The purpose of lead generation is to get qualified prospects to identify themselves and not to close the sale. Unlike mail order that makes and closes the sale at one time, lead generation is a multi-step campaign. Lead...

  • PUSHING the envelope. Quenqua, Douglas // Brandweek;2/25/2008, Vol. 49 Issue 8, p14 

    The article examines the trend of marketers sending out junk mail that appears to be official looking and not a piece of advertising. The article cites several instances of people saying they opened a piece of mail thinking it was important, only to find out that it was junk mail. It is...

Share

Read the Article

Courtesy of THE LIBRARY OF VIRGINIA

Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics