Advertising for Attention and Consumer Search in a Multiproduct Market
Keywords:
Advertising, Assortment, Consumer Search, Game TheoryAbstract
This study investigates two favored strategies, advertising and product line manipulation. We consider multiproduct market when the consumers search order is biased. The consumers sequentially search firms offering substitutable products. Firms employ advertising to create saliency in consumer memories. The consumers receive adverting and then choose their search order. The firm that has lower advertising costs advertises intensively and induces more consumers at the first search. This salient firm maintains higher profits, charges lower prices and has broader assortments. With harder searching, more advertising, more salient products, fewer less-salient products, and higher prices are revealed. With changes in advertising technology, we find that the progress enhances social welfare only if it increases the technology gap between firms. Symmetrical development does not affect welfare. It culminates with more intense levels of advertising.
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