tailieunhanh - The impact of advertising on consumer price sensitivity in experience goods markets

Fritz Institute is very proud to sponsor this special issue of Forced Migration Review in which the crucial role of humanitarian logistics is discussed in the voices of logisticians who have been part of practically every major relief effort over the past decade. We believe that the perspective of the logistician is a strategic and central component to the planning of effective relief efforts. The articles in this issue highlight the multidimensional chal- lenges facing humanitarian logisticians as well as their ingenuity, commitment and heart as they rise to meet the chal- lenges. This special issue is organised into four broad sections. It begins with a series of personal observations by practitioners at World Vision, IRC and Oxfam about the. | Quant Market Econ DOI s11129-007-9020-x The impact of advertising on consumer price sensitivity in experience goods markets Tulin Erdem Michael P. Keane Baohong Sun Received 29 November 2006 Accepted 31 January 2007 Springer Science Business Media LLC 2007 Abstract In this paper we use Nielsen scanner panel data on four categories of consumer goods to examine how TV advertising and other marketing activities affect the demand curve facing a brand. Advertising can affect consumer demand in many different ways. Becker and Murphy Quarterly Journal of Economics 108 941-964 1993 have argued that the presumptive case should be that advertising works by raising marginal consumers willingness to pay for a brand. This has the effect of flattening the demand curve thus increasing the equilibrium price elasticity of demand and the lowering the equilibrium price. Thus advertising is profitable not because it lowers the elasticity of demand for the advertised good but because it raises the level of demand. Our empirical results support this conjecture on how advertising shifts the demand curve for 17 of the 18 brands we examine. There have been many prior studies of how advertising affects two equilibrium quantities the price elasticity of demand and or the price level. Our work is differentiated from previous work primarily by our focus on how advertising shifts demand curves as a whole. As Becker and Murphy pointed out a focus on equilibrium prices or elasticities alone can be quite misleading. Indeed in many instances the observation that advertising causes prices to fall and or demand elasticities to increase has misled authors into concluding that consumer price sensitivity must have increased meaning the number of consumers willing to pay any particular price for a brand was T. Erdem E Stern School of Business New York University New York NY USA e-mail terdem@ M. P. Keane University of Technology Sydney Sydney NSW Australia e-mail .