Marketing Characteristics
Simon P Anderson
Department of Economics
Most previous work on advertising in economics has not addressed what information ads impart or congestion of the advertising channel used by firms to reach prospective consumers. The intellectual contribution of the proposal is in describing what is advertised and where and evaluating the corresponding economic performance. The broader impact is in deepening the economics of marketing.
The first part of the proposal focuses on congestion in advertising communication. The model views a consumer as a common property resource that is "fished" by advertisers vying for attention. Market interaction involves message receivers responding to average consumer surplus in messages, while the number of senders is determined by zero profit for the marginal sender. The equilibrium implies a potentially large discrepancy with the optimal allocation. The framework applies to unsolicited messages such as "junk" mail, "spam" email, and telemarketing calls. Policy issues include postage rates on bulk mail and the Do Not Call program for telemarketing. A rise in the message transmission price may improve welfare by screening out the worst quality offers, and that this may make the consumer more receptive to unsolicited offers, so leading to further welfare improvements. Allowing households to opt out with a Do Not Call program is better than an outright ban but may lead to excessive numbers opting out (since they do not account for advertiser surplus in their private decisions). The model provides a template for looking at which products are advertised through which media (e.g., bulk mail, telemarketing, email) and so to describe firms' choice of marketing channel.
The second part assumes that advertising may enhance consumer valuation of characteristics. However, when a firm advertises a characteristic of its product, this also raises the perceived quality of other rival products that have the characteristic. There are thus positive externalities in advertising (a "Raise-all-boats" effect) as well as the more traditional negative externalities from business stealing that come from advertising of products with dissimilar characteristics. One preliminary result from this analysis is that at most one firm will advertise any characteristic. The analysis is also useful for rephrasing the theory of product differentiation in terms of patterns of complementary qualities: The "Lancaster" theory of demand can also be reframed from this perspective.
The third part takes off from previous research with Renault on "Advertising Content." That paper considers a (monopoly) firm's incentives to provide informative advertising about the good it is selling and shows that a firm would like to be sparing with the information communicated in an ad. The proposed research looks at advertising used to help launch a new product and the response of an incumbent that may indulge in "negative" advertising that informs prospective consumers about features the entrant might rather not divulge. The welfare economics of a ban on negative advertising are addressed here, and suggest that a ban may be detrimental to welfare because it stifles information under some circumstances despite possible adverse price effects. This research vein also adds to earlier work by considering the type of characteristics advertised by firms. Initial results suggest that vertical "quality" characteristics tend to be advertised before horizontal characteristics and prices enter the equilibrium mix of characteristics communicated.
More information at www.virginia.edu
Project Sponsored By: U.S. Nsf - Directorate Soc., Behav. & Eco. Science
Start Date: 6/1/2005
- End Date: 5/31/2009
Award Amount: $112,380.00
|
RSS Feed