Competitive Advertising and Pricing

We consider an oligopoly model in which each firm chooses not only its price but also its advertising strategy regarding how much product information to provide. Unlike most previous studies on advertising, we impose no structural restriction on feasible advertising content, so that each firm can freely disclose or conceal any information. We provide a general and complete characterization of the equilibrium advertising content, which illustrates how competition shapes firms’ advertising incentives. We also explore the economic consequences of competitive advertising and investigate how a firm’s advertising decision interacts with its pricing decision. JEL Classification Numbers: D43, L11, L13, L15, M37.