A Simple Model of Informative Advertising

This paper presents an oligopolistic model of informative advertising, where firms simultaneously choose prices and advertising intensities. For this game there is a dispersed price equilibrium in which the amount of advertising by each firm is socially optimal. The advertising technology considered is more general than in Butters', however his results can be obtained as the number of firms tends to infinity. For some advertising technologies entry leads to a market contraction; we can also observe situations where increases in advertising costs lead to higher profits. This model can be used as a "benchmark" against which other models of informative advertising can be compared.