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- Title
LIMITED INFORMATION AND ADVERTISING IN THE U.S. PERSONAL COMPUTER INDUSTRY.
- Authors
GOEREE, MICHELLE SOVINSKY
- Abstract
Traditional discrete-choice models assume buyers are aware of all products for sale. In markets where products change rapidly, the full information assumption is untenable. I present a discrete-choice model of limited consumer information, where advertising influences the set of products from which consumers choose to purchase. I apply the model to the U.S. personal computer market where top firms spend over $2 billion annually on advertising. I find estimated markups of 19% over production costs, where top firms advertise more than average and earn higher than average markups. High markups are explained to a large extent by informational asymmetries across consumers, where full information models predict markups of one-fourth the magnitude. I find that estimated product demand curves are biased toward being too elastic under traditional models. I show how to use data on media exposure to improve estimated price elasticities in the absence of micro ad data.
- Subjects
UNITED States; DISCRETE choice models; PRODUCT differentiation; PRICE markup; COMPUTER industry advertising; CONSUMER preferences
- Publication
Econometrica, 2008, Vol 76, Issue 5, p1017
- ISSN
0012-9682
- Publication type
Article
- DOI
10.3982/ECTA4158