Advertising Intensity And Welfare In An Equilibrium Search Model

The authors analyze an equilibrium search model in a duopoly setting with bilateral heterogeneities in production and search costs in which firms can advertise by announcing price and location. They study existence, stability, and comparative statics in such a setting, compare the market advertising level to the socially optimal level, and find conditions in which firms advertise more or less than the social optimum. In this paper, they study an equilibrium search model in a duopoly setting and introduce an advertising technology by which firms can inform consumers of their price. The underlying market structure is similar to that of Carlson and McAfee (1983) and B´enabou (1993) with bilateral heterogeneities in production and search costs.