Regular Article Oligopolistic Pricing and Advertising


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Stahl II Dale O.
Department of Economics, University of Texas, Austin, Texas 78712



Available online 26 April 2002.

AbstractN sellers advertise a homogeneous good to M buyers whose only source of information is this advertising. There is a unique Nash Equilibrium (NE) in which sellers choose a common advertising level and mix over prices. This NE approaches marginal cost pricing as advertising costs decrease, and approaches monopoly pricing as advertising costs increase. More sellers induce lower prices and less advertising per seller; however, the social welfare effect can be negative for some advertising technologies. The NE advertising level is generically less than socially optimal. Journal of Economic Literature Classification Numbers: D00, D4, D43, D8, D83, I00, I1, I13, M37.


Journal of Economic Theory
Volume 64, Issue 1, October 1994,Pages 162-177