INFORMATIVE ADVERTISING AND PRODUCT MATCH

This paper studies informative advertising in a variety of market structures for which some consumers are informed about two differentiated products while other consumers are uninformed. We characterize a unique symmetric subgame perfect Nash equilibrium in advertising and pricing, and analyze the welfare properties of the equilibrium. Remarkably, total surplus is non-monotonic in advertising. In a duopoly market, the equilibrium level of advertising may be more or less than socially optimal. We also study the effect of a trade association, and compare these results with the first-best solution and a multiproduct monopolist.