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Review of Industrial Organization

, Volume 20, Issue 3, pp 253–265 | Cite as

Advertising with Subjective Horizontal and Vertical Product Differentiation

  • Victor J. Tremblay
  • Stephen Polasky
Article

Abstract

In this paper, we analyze the impact of advertising on markets wheresubjective horizontal and vertical product differentiation are important. A simple model showshow advertising can be used to create subjective horizontal and vertical differentiation.The model predicts that firms are likely to be symmetric when advertising creates subjective horizontaldifferentiation and that name and generic brands are most likely to coexist in markets whereadvertising creates subjective vertical differentiation. In all cases, the ability toadvertise creates distance between products which increases the market power of firms. Finally, severalreal world examples are used to illustrate the conditions under which the model is most relevant.

Horizontal differentiation persuasive advertising price competition vertical product differentiation 

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Copyright information

© Kluwer Academic Publishers 2002

Authors and Affiliations

  • Victor J. Tremblay
    • 1
  • Stephen Polasky
    • 2
  1. 1.Department of EconomicsOregon State UniversityCorvallisU.S.A.
  2. 2.Department of Applied EconomicsUniversity of MinnesotaSt. PaulU.S.A.

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