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Segmentation, advertising and prices

Galeotti, Andrea and Moraga-González, José Luis (2008) 'Segmentation, advertising and prices.' International Journal of Industrial Organization, 26 (5). pp. 1106-1119. ISSN 0167-7187

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This paper explores the implications of market segmentation on firm competitiveness. In contrast to earlier work, here market segmentation is minimal in the sense that it is based on consumer attributes that are completely unrelated to tastes. We show that when the market is comprised by two consumer segments and when there is sufficient variation in the per-consumer costs firms need to incur to access the different consumer populations, then firms obtain positive profits in symmetric equilibrium. Otherwise, the equilibrium is characterized by zero profits. As a result, a minimal form of market segmentation combined with advertising cost asymmetries across consumer segments give firms an opportunity to generate positive rents in an otherwise Bertrand-like environment. © 2007 Elsevier B.V. All rights reserved.

Item Type: Article
Uncontrolled Keywords: segmentation; advertising; oligopoly; price dispersion; price discrimination
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences
Faculty of Social Sciences > Economics, Department of
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 16 Jul 2012 14:32
Last Modified: 18 Aug 2022 10:57

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