Segmentation, advertising and prices

Andrea Galeotti*, José Luis Moraga-González

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

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.

Original languageEnglish
Pages (from-to)1106-1119
Number of pages14
JournalInternational Journal of Industrial Organization
Volume26
Issue number5
DOIs
Publication statusPublished - Sep 2008

Keywords

  • Advertising
  • Oligopoly
  • Price discrimination
  • Price dispersion
  • Segmentation

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