For helpful comments we are grateful to an associate editor and two anonymous referees. The authors remain responsible for all errors.
Advertising as Information: Matching Products to Buyers
Article first published online: 13 JAN 2005
Journal of Economics & Management Strategy
Volume 2, Issue 2, pages 199–243, June 1993
How to Cite
Bagwell, K. and Ramey, G. (1993), Advertising as Information: Matching Products to Buyers. Journal of Economics & Management Strategy, 2: 199–243. doi: 10.1111/j.1430-9134.1993.00199.x
- Issue published online: 13 JAN 2005
- Article first published online: 13 JAN 2005
We consider communication of quality via cheap talk and dissipative advertising expenditures, when consumers have heterogeneous tastes for quality, and price information must be acquired through costly search. For search pods, cheap talk communicates quality when fixed costs are roughly constant across quality levels, while if fixed costs vary greatly with quality, then firms having the higher fixed-cost quality level use dissipative advertising. For experience goods, quality can be communicated by cheap talk in a range where low-quality firms have greater fixed costs, and low-quality firms use dissipative advertising if their fixed costs are greater still.