Informative Brand Advertising and Pricing Strategies in Internet Markets with Heterogeneous Consumer Search

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  2. Dr Stephen McDonald
  3. Professor Colin Wren
Author(s)McDonald S, Wren C
Publication type Article
JournalInternational Journal of the Economics of Business
ISSN (print)1357-1516
ISSN (electronic)1466-1829
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The use of information intermediaries has been shown to undermine the effect of brand in online markets. In this paper the direct effect of search on the relationship between brand advertising and pricing strategies is analyzed. Price data are taken from the leading UK motor insurance comparison site, with the advantage that prices can be related to the search characteristics of consumers and to the advertising expenditure of firms. The paper finds that more-advertised firms have lower price rankings at the comparison site, indicating that advertising is informative in this market. The main result is that search weakens the relationship between advertising and pricing. An implication is that increased usage of price comparison sites will make informative brand advertising less important.
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