题目: Optimal Advertising Content Under Limited Attention

主讲人: Yun Wang (Mays Business School, Texas A&M University)

时间:2019年12月19日 10:30


Abstract: Should competing firms pursue informative advertisements about quality to establish vertical quality from prices in the absence of differentiation, or persuasive advertisements about subjective differences with the competitor to establish horizontal differentiation? I investigate this question, taking into account the upstream effects of consumers having limited attention, and downstream pricing decisions. Applying the theory of rational inattention to capture the realism of attention being a scarce resource for consumers, I am able to model how competing firms make this key advertising decision when consumers endogenize information acquisition given quality uncertainty in firms’ products. I obtain two key findings from my research. First, and most intuitively, the low-quality firm always prefers persuasive advertising to avoid disclosure of quality disadvantages. But counter-intuitively, this does not mean that a high-quality firm necessarily finds it advantageous to be informative about its high quality. Specifically, when information cost is low, the benefit of horizontal differentiation through persuasive advertising dominates vertical differentiation through informative advertising; when information cost is high, the reverse happens. My second key theoretical finding is the relationship between advertisement and pricing. Interestingly, there are conditions under which a high-quality firm can charge a lower price than a low-quality firm as a partially separating equilibrium, if strategically sophisticated consumers are able to infer quality from prices in the absence of product information in persuasive advertising.