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Segmentation, advertising and prices

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

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Abstract

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
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Jim Jamieson
Date Deposited: 16 Jul 2012 14:32
Last Modified: 23 Jan 2019 00:15
URI: http://repository.essex.ac.uk/id/eprint/2979

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