Essays on Advertising and Price Collusion

Persuasive advertising alters consumers’ tastes and creates brand loyalty. The established view in the economics literature is that such advertising is anti-competitive and results in higher prices. This paper demonstrates that this is not necessarily true. This is shown in a model of a duopoly with horizontal product differentiation, where firms interact repeatedly over an infinite horizon…


1 Introduction
2 Persuasive Advertising and Price Semicollusion
2.1 Introduction
2.2 Literature Review
2.3 The Model
2.3.1 Competition
2.3.2 Semicollusion
2.3.3 Advertising Cost and Product Substitutability
2.4 Price Comparison across Regimes
2.5 Conclusion
3 The Effect of Advertising on Price Collusion: Evidence from U.S.
3.1 Introduction
3.2 Literature Review
3.3 Theoretical Model
3.3.1 Advertising and Consumer Preferences
3.3.2 Demand Functions
3.3.3 Firm Behavior
3.3.4 Price Collusion under Market-Expanding Advertising
3.3.5 Price Collusion under Market-Stealing Advertising
3.4 Data Set
3.4.1 Collusive Industries
3.4.2 Price Collusion and Advertising Competition
3.4.3 Non Collusive Industries
3.4.4 Sample Selection
3.5 Empirical Methodology
3.5.1 Industry Variables
3.5.2 Advertising
3.5.3 Market-Stealing Advertising
3.5.4 Data Description
3.5.5 Empirical Model
3.5.6 Potential Endogeneity
3.6 Results and Interpretation
3.6.1 Advertising
3.6.2 Other Industry Variables
3.7 Conclusion
A Appendix to Chapter 1
A.1 Derivation of demand functions
A.2 Proofs
A.2.1 Proposition 1
A.2.2 Lemma 1
A.2.3 Lemma 2
A.2.4 Lemma 3
A.2.5 Lemma 4 and Lemma 5
A.2.6 Lemma 6 and Lemma 7
A.2.7 Price Comparison Across Regimes
B Appendix to Chapter 2
B.1 Informative Advertising
B.1.1 Model
B.1.2 Product Differentiation and the Market-Stealing Effect
C Data Appendix
C.1 Collusive Products and Four-Digit SICS Collusive Industries
C.2 Sample of Industries used in Estimation

Author: Singh, Kartikeya

Source: University of Maryland

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