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In markets where firms sell similar goods to their competitors, firms may be able to free-ride off the costly price signalling of competitor firms by engaging in price comparative advertising. As the goods are similar, consumers can reason that if one good is high quality (revealed through price signalling) then so is the other. This paper models t...
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... these prices and profits expressions for the proportion of advertisers and the bottom 11 The values given H, c L are chosen so that the demand curve is downward sloping across all feasible prices. The value given L is chosen as it is approximately halfway up the interval and exploits the pythagorean triple (8,15,17) to get a rational signalling price. In general a higher L value leads to full information delivering higher surplus for all c H whilst lower L values lead to the advertising equilibrium being more efficient for all c H . Figures 1 and 2 were constructed with these parameters and c H = 0.4. price can be ...
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