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Advertising with Subjective Horizontal and Vertical Product Differentiation

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Abstract

In this paper, we analyze the impact of advertising on markets wheresubjective horizontal and vertical product differentiation are important. A simple model showshow advertising can be used to create subjective horizontal and vertical differentiation.The model predicts that firms are likely to be symmetric when advertising creates subjective horizontaldifferentiation and that name and generic brands are most likely to coexist in markets whereadvertising creates subjective vertical differentiation. In all cases, the ability toadvertise creates distance between products which increases the market power of firms. Finally, severalreal world examples are used to illustrate the conditions under which the model is most relevant.

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Authors and Affiliations

  1. Department of Economics, Oregon State University, 303 Ballard Extension Hall, Corvallis, OR, 97331-3612, U.S.A.

    Victor J. Tremblay

  2. Department of Applied Economics, University of Minnesota, Twin Cities, 1994 Buford Avenue, St. Paul, MN, 55108, U.S.A.

    Stephen Polasky

Authors
  1. Victor J. Tremblay
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  2. Stephen Polasky
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Tremblay, V.J., Polasky, S. Advertising with Subjective Horizontal and Vertical Product Differentiation. Review of Industrial Organization 20, 253–265 (2002). https://doi.org/10.1023/A:1015095508749

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