【摘要】：How should online retailers attract customers? Should they advertise intensively to direct online traffic, or should they simply price lower than their competitors? In this paper, we attempt to study these decisions firms face and how market characteristics affect the firms’ decisions and the market outcome. We develop a game-theoretic model of two firms choosing advertising levels and prices strategically. We find that only asymmetric equilibria exist, or etailers choose different strategies along both advertising and pricing dimensions. When the market mobility is low, firms engage in fierce competition in advertising, and the firm choosing a higher advertising level also charges a higher price and earns higher profits. When the market mobility is high or medium, one firm chooses to advertise intensely while the other may choose to charge a lower price and not to advertise at all; and in such cases either firm may make higher profits. We also compare the market outcome in our model with the case where firms do not have the option to advertise and find that the option to advertise leads to higher expected prices for any given market composition and both etailers can make higher profits than without the option, even for the firm that advertises intensively and bears the extra cost. We also extend the model to consider etailers choosing advertising levels sequentially.
