Persuasive Advertising in Conformist and Snobbish Markets

Paper      [60 minute presentation]

I model persuasive advertising for conspicuous goods that can either be made more attractive by greater popularity ("conformist markets'') or by greater exclusivity ("snobbish markets''). Consumers are endowed with a latent attribute measuring some aspect of their identity, and a social status implied by this attribute. Consumers wish to signal a high social status, and the function of advertising is to render brands a signaling device by linking products with social groups. In a conformist market, I find that advertising increases demand elasticity, inducing firms to converge on low prices, and can be used by a first mover to deter entry and gain monopoly rents. In this setting, advertising creates a cutthroat environment in which only one product can survive. In a snobbish market, advertising reduces demand elasticity, dampens price competition and promotes firm entry. In this setting, advertising can act as a public good to firms, increasing all firms' prices and profits. Additionally, it can lead to asymmetric equilibria where a firm appealing to high status consumers advertises more heavily, capturing a greater market share and charging a higher price. Furthermore, I bring micro-foundation to persuasive advertising, allowing analysis of the channels through which it impacts welfare. Finally, I show that the model can help explain well-documented empirical puzzles in the marketing and empirical industrial organization literatures.

Presented: 14th Bass FORMS Conference (2020), Georgetown (2019), Economic Graduate Student Conference at Washington University in St. Louis (2019), Villanova Meeting on Behavioral and Experimental Economics (2019)


Presented: Economic Science Association North America Meetings (2019, coauthor presented)
Funded (in part): UMD Dean's Research Initiative
Presented: Economic Science Association World Meetings (2019), Economic Science Association North America Meetings (2019), Stanford GSB Political Economy Seminar (2019, coauthor presented), Barcelona GSE Summer Forum (2019, coauthor presented), CREST Malinvaud-Adres Seminar (2018, coauthor presented), Fourth Taxation Theory Conference at Washington University in St. Louis (2018, coauthor presented)
Funding: NSF Social and Economic Sciences Grant 1534132


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