Information Structures of Product Markets

Abstract

Buyers demand continuing information flows to guide their choices among competing product brands. They select portfolios of information types, some supplied by sellers of the branded goods, some not. This paper investigates the determinants of businesses' outlays on information (media advertising, sales force, other sales promotion). They include buyers' overall' demands for information, buyers' access to sources not controlled by the seller, the relative efficiency of seller-supplied information, and competitive conditions in the product market. The hypotheses about effects on sellers' totd information outlaysare strongly supported. Some evidence appears on determinants of the mixture of information types they provide.Buyers acquire information in order to assist their choice between competing hands of a product. Sellers supply some of this information; some comes from independent sources. We have little systematic positive knowledge of what determines the size and composition of these flows of information, yet a number of normative issues in the field of industrial organization turn on the structure and performance of this informational complement to the product market. Do heavy outlays on advertising represent a response to buyers' demands for information, or do they entail some form of market failure? In this paper we employ a proprietary data base to expose some determinants of these information flows.

Advertising and Quality in the U.S. Market for Automobiles

“…More recent non-game-theoretic studies have examined the determinants of advertising Using a derived demand framework (e.g., Porter 1976;Ehrlich and Fisher 1982;Caves 1986). In these models, as with signalling models, consumers have imperfect knowledge about product quality.…”

“…While recent game-theory literature thoroughly analyzes advertising's ability to signal quality (reviewed below), empirical evidence is somewhat limited and generally mixed. For example, Caves (1986) and Tellis and Fomell (1988), using the Profit Impact of Market Strategies database (a broad interindustry data set), show that high quality generally induces higher advertising expenditures. In contrast, Caves and Greene (1996), conducting a multiple-product analysis of quality, price, and advertising, find a positive correlation between advertising and quality when examining goods where buyers' experience and search are effective at guiding brand choice but a negative correlation for convenience goods.…”

Lower bounds of concentration in Taiwan's manufacturing industries: do exports matter?

“…The business of PIMS data represents a wide range of firms typically among the Fortune 1000. See Caves (1986) for insights into PIMS data. 6 Wahlroos and Backstrom (1982) investigate the R&D-concentration relationship for a small open economy, Finland.…”

Costs, Institutional Mobility Barriers, and Market Structure: Advertising Agencies as Multiproduct Firms

“…Host of the large body of theoretical and empirical studies of advertising has tended to focus on issues relating to the amount firms expend for advertising, and the effects those outlays have on the behavior of consumers and competitors.1 As Caves [1986] has discussed, sellers' decisions about the information they supply are influenced not only by the demands of buyers, but also by the costs and technological capabilities of alternative channels and media available for transmitting messages. However, economic analysis of the costs and organization of the production of advertising has been meager at best.…”