Persuading Consumers with Social Attitudes
22 Pages Posted: 3 Jun 2011
Date Written: May 31, 2011
This paper analyzes persuasive advertising and pricing in oligopoly if firms sell differentiated products and consumers have heterogeneous social attitudes towards the consumption by others. Deriving product demand from primitives, we show that the demand-enhancing effect of persuasive advertising varies across consumers and increases in the average degree of conformity. In equilibrium, both quality and cost leaders choose higher advertising intensities and charge higher prices than their competitors. In addition, we show that an increase in the average degree of conformity among consumers reinforces asymmetries between firms.
Keywords: advertising, social attitude, consumption externality, quality
JEL Classification: D110, D430, L150, L210, M370
Suggested Citation: Suggested Citation