Document Type

Working Paper

Publication Date

3-2017

Abstract

I develop a new theory of persuasive advertising in which consumers rationally adjust to (i.e., improve their attitude toward) the products they choose and advertising facilitates adjustment. Advertising's price effects depend on whether marginal or inframarginal consumers are most heavily targeted, consistent with the literature. But they also depend on advertising's role as an overall adjustment intensifier, whence variation in the cost of adjustment with the strength of the consumers initial product preference determines the equilibrium price level. Whether too much or too little advertising is provided in equilibrium depends on the sign and size of advertising's price effect, the relative density of marginal consumers, and the relative extent to which advertising's adjustment cost reductions benefit marginal consumers.

Comments

This paper is Working Paper 14 in the Working Paper Series of the Ph.D. Program in Economics at the Graduate Center, CUNY. It is also available via RePEc: https://ideas.repec.org/p/cgc/wpaper/014.html.

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