Question:
What model can be used to examine the effect of informative advertising (consumer gain) ?
Author: Hjalmer PedersenAnswer:
Notation: MC: constant cost to the consumer by searching product information for another hour MB1: The prize for the consumer by searching product information for another hour without advertising Model implications: • The consumer will seek information until MB1=MC => s1 search time. • MB2: The prize for the consumer by searching product information for another hour with advertising The consumer will seek information until MB2=MC => s2. • Notice at s2 < s2, i.e. advertisement reduce consumer search costs.
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