Advertising And Collusion In Retail Markets

In this paper, authors investigate advertising behaviors of privately informed firms when some consumers use an advertising search rule, whereby they go to the firm that advertises the most. In the static game that the lowest-cost firm advertises the most, and thus advertising directs market share to the lowest-cost supplier and promotes productive efficiency. In the repeated game that colluding firms give up productive efficiency to avoid advertising expenditures. Full or partial pooling is observed in optimal collusion. This result is an incomplete-information confirmation of the idea that colluding firms may seek to diminish advertising competition.