Microeconomics · free preview
Differentiation, Brands and Advertising
Firms choose where to sit in product space, advertising can inform or persuade, and brand-building can signal quality by burning money in a way only good products can afford.
1. Choosing where to stand
Choosing where to stand
2. Advertising's two souls
Advertising's two souls
3. Burning money to prove quality
Burning money to prove quality
4. The module closes on structure
The module closes on structure
5. Minimum differentiation
Two ice cream vendors on a beach with fixed prices and swimmers spread evenly will each do what, and what is the welfare consequence?
6. Money-burning signals
Why can heavy brand advertising make a new product's quality claim more believable?
7. The signal's payoff
A firm spends 2 million dollars launching a product. If the product is good it earns 1 million per year forever, and if it is bad it earns nothing after the first year, when disappointed customers leave. Compute how many years of good-product earnings are needed to repay the launch spend, and write the number.
8. Where the carts end up
Two ice cream vendors sell at fixed prices on a beach with swimmers spread evenly. Where do they end up standing?
9. Burning money to be believed
Why can heavy brand advertising make a new product's quality claim more believable?
10. The signal's net payoff
A firm spends 6 million dollars launching a product. If it is good it earns 10 million in repeat sales, while a bad product earns nothing beyond the launch. Compute the good product's net gain from the launch spend, and write the number.
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