search query: @indexterm Advertising / total: 1883
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| Author: | Esteves, R.B. |
| Title: | Customer poaching and advertising |
| Journal: | Journal of Industrial Economics
2009 : MAR, VOL 57:1 p. 112-146 |
| Index terms: | consumer behaviour advertising psychology communication price discrimination |
| Language: | eng |
| Abstract: | This paper looks at the dynamic effects of customer poaching in homogeneous product markets, where firms have to invest in advertising to create awareness. When a company is able to identify customers with different purchasing histories, it can send them targeted advertisements with different prices. It is illustrated that only the firm advertising the highest price in the first period engages in price discrimination, a practice that obviously benefits the discriminating firm. This poaching causes the race for discrimination effect, through which price discrimination may act to actually ease price competition rather than intensify it. Consequently, all firms may end up better off, even when only one of them is able to engage in price discrimination. This paper also evaluates the effects of price discrimination on the efficiency properties of advertising. In markets where advertising costs are low or nonexistent, allowing firms to price discriminate results in too little advertising, which is not optimal for consumers and overall welfare. Only in markets with high advertising costs firms might overadvertise. It is found that price discrimination is generally bad for welfare and consumer surplus, however it benefits companies. |
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