Essays on the Economics of Informative Advertising with Applications to the Television Industry

This dissertation presents three essays on informative advertising in markets with differentiated products and consumer search. The first essay analyzes a single television station's choice of airing tune-ins (preview advertisements). I consider two consecutive programs located along a unit line. Potential viewers know the earlier program but are uncertain about the later one. They may learn its location through a tune-in if they watch the earlier program and the television station chose to air a tune-in, or by sampling it for a few minutes. If the sampling cost is sufficiently low, the unique perfect Bayesian equilibrium (PBE) exhibits no tune-ins. If it is sufficiently high, the unique PBE involves a tune-in whenever the two programs are similar enough. For all other values of the sampling cost, either PBE may arise. When the programs are also quality-differentiated, the willingness to air a tune-in, and thus to disclose location information, may be sufficient to signal high quality without any dissipative advertising. The second essay extends the first one by including a second TV station. Now, each station's tune-in decision may also depend on the rival station's program, thereby revealing more information than the actual content of the tune-in. This happens only if the sampling cost is low enough. Otherwise, each station makes its tune-in decision independently of its rival's program. Thus, there may exist signaling via informative advertising. It is welfare improving to ban tune-ins in the latter case while this is not necessarily true in the former one. ii The third essay analyzes informative advertising in a duopoly market with differentiated products when consumer search is costless. If consumers are fully rational, exposure to a single advertisement is sufficient for them to obtain complete market information. In this case, firms undersupply advertising compared to the social optimum because of free-riding. If consumers are not fully rational, they may ignore the existence of another firm when the only advertisement they receive quotes the monopoly price. In this case, both firms advertise the monopoly price, and the market may produce too much or too little advertising compared to the social optimum.

Note: Abstract extracted from PDF text