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Jose M. Hernandez and Lola Esteban
''Specialized advertising and price competition with endogenous advertising fees''
( 2011, Vol. 31 No.2 )
This paper studies how the strategic interaction between a specialized communication platform and two firms, competing in prices and advertising efforts, determines the equilibrium advertising fee and the pattern of competition between sellers. We show that the link between information and price competition in the product market leads the platform to ask for high prices for its advertising services, in the sense that the resulting product prices rise to the level where the marginal potential consumer achieves zero utility, so firms can exercise a high degree of market power and consumers achieve a low surplus.
Keywords: informative advertising, price competition, horizontal differentiation.
Manuscript Received : Apr 14 2011 Manuscript Accepted : Jun 07 2011

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