Simbanegavi, Witness (2008): Loss leader or low margin leader? Advertising and the degree of product differentiation.
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This paper attempts to isolate the conditions that give rise to loss leader pricing. I show that for sufficiently low distance between firms, the advertised good is priced below cost irrespective of whether firms advertise the same or different products. Instead, if products are sufficiently differentiated, loss leader pricing may result only if firms advertise the low reservation value product, otherwise the advertised good is a low margin leader. Thus, whether the advertised good is a loss leader or a low margin leader is primarily a function of the extent of differentiation between competing firms.
|Item Type:||MPRA Paper|
|Original Title:||Loss leader or low margin leader? Advertising and the degree of product differentiation|
|Keywords:||Informative advertising, loss leader, low margin leader, product differentiation|
|Subjects:||M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M3 - Marketing and Advertising
L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance
|Depositing User:||Witness Simbanegavi|
|Date Deposited:||24. Jul 2008 10:39|
|Last Modified:||07. May 2014 11:45|
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