publication . Article . 2000

Raising Awareness and Signaling Quality to Uninformed Consumers: A Price-Advertising Model

Hao Zhao;
Open Access
  • Published: 01 Jan 2000 Journal: Marketing Science, volume 19, issue 4 January, pages 390-396
The objective of this paper is to investigate the firm's optimal advertising and pricing strategies when introducing a new product. We extend the existing signaling literature on advertising spending and price by constructing a model in which advertising is used both to raise awareness about the product and to signal its quality. By comparing the complete information game and the incomplete information game, we find that the high-quality firm will reduce advertising spending and increase price from their respective complete information levels. In the separating equilibrium, the high-quality firm will actually spend less on advertising than the low-quality firm, ...
free text keywords: New Products, Advertising Strategies, Pricing, Signaling Game, Separating Equilibrium
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