Product quality,advertising intensity and market size |
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Authors: | Bing Han Hayley H Chouinard |
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Institution: | School of Economic Science, PO Box 646210, Washington State University, Pullman, WA, 99164-6210, United States |
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Abstract: | We develop a model of product differentiation in which firms strategically compete in product quality and advertising intensity. Products exhibit a combination of vertical and horizontal differentiation. A consumer’s utility has a stochastic relationship with quality, but they are more likely to prefer a higher quality good. Consumers face a trade-off between higher quality goods and price. Increased competition leads to less advertising, but may result in higher or lower quality products offered in the market. |
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Keywords: | L110 L150 L220 |
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