Informative advertisement of partial compatible products

Product design and advertisement strategy have been theoretically studied as separate firms decisions. In the present paper, we look at the link between advertisement and product design and we analyze how firms’ advertising decisions influence the market effect of product design. We consider a model...

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Autor Principal: Roig Roig, Guillem
Formato: Preimpresión (Preprint)
Publicado: Toulouse School of Economics 2014
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Acceso en línea:https://repository.urosario.edu.co/handle/10336/29845
id ir-10336-29845
recordtype dspace
spelling ir-10336-298452020-09-11T21:05:39Z Informative advertisement of partial compatible products Publicidad informativa de productos parcialmente compatibles Roig Roig, Guillem Informative advertisement Product design Partial compatibility Welfare Product design and advertisement strategy have been theoretically studied as separate firms decisions. In the present paper, we look at the link between advertisement and product design and we analyze how firms’ advertising decisions influence the market effect of product design. We consider a model of informative advertisement where two firms produce a bundle of complementary products which are partially compatible. A product design with more compatible components is associated with a larger intensity of advertisement. Higher compatibility reduces competition between firms, which incentivizes them to give factual information about their bundle. Like Matutes and Regibeau (1988), industry profit and total welfare is maximized with full product compatibility. However, contrary to them, we obtain that consumer surplus is not monotone with the level of product compatibility and its maximum is attained with partial compatibility. Moreover, because consumer surplus not only depends on the equilibrium prices but also on the intensity of advertisement, we find that for intermediate equilibrium levels of advertising, consumers prefer fully compatible components rather than full incompatibility. As a result, a more compatible product design benefits all the agents in the economy. 2014-03-26 2020-09-11T21:05:39Z info:eu-repo/semantics/preprint info:eu-repo/semantics/draft https://repository.urosario.edu.co/handle/10336/29845 info:eu-repo/semantics/openAccess application/pdf Toulouse School of Economics TSE Working Papers
institution EdocUR - Universidad del Rosario
collection DSpace
topic Informative advertisement
Product design
Partial compatibility
Welfare
spellingShingle Informative advertisement
Product design
Partial compatibility
Welfare
Roig Roig, Guillem
Informative advertisement of partial compatible products
description Product design and advertisement strategy have been theoretically studied as separate firms decisions. In the present paper, we look at the link between advertisement and product design and we analyze how firms’ advertising decisions influence the market effect of product design. We consider a model of informative advertisement where two firms produce a bundle of complementary products which are partially compatible. A product design with more compatible components is associated with a larger intensity of advertisement. Higher compatibility reduces competition between firms, which incentivizes them to give factual information about their bundle. Like Matutes and Regibeau (1988), industry profit and total welfare is maximized with full product compatibility. However, contrary to them, we obtain that consumer surplus is not monotone with the level of product compatibility and its maximum is attained with partial compatibility. Moreover, because consumer surplus not only depends on the equilibrium prices but also on the intensity of advertisement, we find that for intermediate equilibrium levels of advertising, consumers prefer fully compatible components rather than full incompatibility. As a result, a more compatible product design benefits all the agents in the economy.
format Preimpresión (Preprint)
author Roig Roig, Guillem
author_facet Roig Roig, Guillem
author_sort Roig Roig, Guillem
title Informative advertisement of partial compatible products
title_short Informative advertisement of partial compatible products
title_full Informative advertisement of partial compatible products
title_fullStr Informative advertisement of partial compatible products
title_full_unstemmed Informative advertisement of partial compatible products
title_sort informative advertisement of partial compatible products
publisher Toulouse School of Economics
publishDate 2014
url https://repository.urosario.edu.co/handle/10336/29845
_version_ 1677976670314692608
score 11,383811