Advertising and consumer search

Abstract

This dissertation advances our understanding of interaction between advertising and consumer search. If advertising lowers consumer search costs, it can affect competition. Previous studies by Butters (1977) and Robert and Stahl (1993) show that giving sellers the option of price advertising can significantly lower equilibrium market prices. These models assume that sellers make two bundled decisions: sellers determine the proportion of buyers that receive advertisements (ads) and reveal the price that they intend to charge in such ads. However, the vast majority of advertising does not reveal product pricing. Chapter 1 argues that certain types of advertising may reduce consumer search costs without actually mentioning the price in the message. This leads me to propose a model in which firms first decide whether to advertise, and then set prices. In this model, the equilibrium price with advertising returns to the monopoly level.