Persuasive Advertising and Product Differentiation

We suggest a simple framework for characterizing alternative ways that “persuasive advertising” may affect consumer preferences. We illustrate the implications of our theory—and contrast it with results from models of informative advertising—by analyzing the relationship between the degree of product differentiation and equilibrium levels of advertising. The analysis suggests that a positive relationship between equilibrium levels of advertising and (inherent) product substitutability is consistent only with advertising that “increases perceived product differences.”