DISSIPATIVE ADVERTISING IN RETAIL MARKETS

Significant amounts of money are spent every year on advertising. Because under some legislation the direct advertising of the products' price is forbidden and the quality is very difficult to he signaled, it is important to know if the dissipative advertising maybe successfully used by the firms to signal elements as the price or the quality of the goods. Dissipative advertising has two main characteristics: first it does not directly affect demand and second it is easy to observe that a substantial amount of money has been spent. In this paper we analysed the advertising behaviour of firms with private information as to their respective qualities. The key point is that the firm which spends the most on advertising has the highest quality. Thus the "non-informative" advertising is able to signalize to consumers the highest quality firm.