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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Economic Behavior & Organization, Volume 71, Issue 2, August 2009, Pages 528–538
This paper applies the theories of exposure order effects, developed in the psychology literature, to an industrial organization model to explore their role in advertising competition. There are two firms and infinitely many identical consumers. The firms produce a homogeneous product and distribute their brands through a common retailer. Consumers randomly arrive at the retailer and buy their most preferred brands. The order in which a consumer sees the advertising messages affects his brand preferences. Under the primacy effect the consumer prefers the brand he first saw advertised, under the recency—the last encountered brand. The equilibrium of the advertising game is characterized separately under the primacy and the recency effects. In the first setting all consumers are initially unaware of the product existence. The equilibrium advertising intensities, remarkably, do not depend on the type of exposure order effect. In the other two settings some consumers have already formed their brand preferences. The primacy and the recency effects give rise to different equilibrium outcomes.
Traditionally, advertising has been studied by two very different subfields of social science, economics and psychology.1 The economics literature on advertising has been concerned with such important questions as the informational content of ads, the socially optimal level of advertising, and firm rivalry. The psychology literature, among other things, has explored the connection between information processing and advertising effectiveness. The goal of this paper is to develop a model that incorporates economics and psychology to examine how information processing biases affect advertising competition between firms. Past research in psychology has shown that the order in which consumers are exposed to brands influences consumer preferences. Two advertising order effects have received attention. The primacy effect is characterized by greater persuasion consequence of the first advertising message. On the other hand, the recency effect occurs when the last encountered brand is preferred. Whether exposure order results in the primacy effect or in the recency depends on different factors, such as overall involvement, motivation, attitude strength, and the time between information exposure and preference construction.
نتیجه گیری انگلیسی
This paper has applied the theories of exposure order effects, developed in psychology literature, to an industrial organization model to explore their role in advertising competition. The equilibrium advertising intensities were characterized separately under the primacy and the recency effects in three different settings. It was shown that in a new market (Setting I) the advertising equilibrium does not depend on the type of exposure order effect. However, in a growing market where a number of consumers have already formed their preferences about the two brands (Setting II), or if one of the firms has more customers than the other (Setting III), the primacy and the recency effects give rise to different equilibrium outcomes. Under the primacy effect the consumers who prefer a particular brand from the outset will never switch to the other brand. The firms compete for initially ignorant consumers, and, therefore, choose the same advertising intensities across both settings. Under the recency effect, on the other hand, each firm's advertising messages affect ignorant consumers as well as those who prefer the rival brand. In Setting II the firms choose higher advertising intensities under the recency effect than under the primacy. In Setting III firm B chooses higher advertising intensity than firm A. It was also shown that in all three settings the firms over-advertise in equilibrium. One of the limitations of the present model is that the firms’ advertising intensities are fixed throughout the game. A dynamic version of the advertising game, in which the firms choose their advertising intensities continuously, does not have an analytical solution. This is because the differential equations that describe the primacy and the recency effects are not linear in the advertising intensities.6 Analyzing the static game under different initial conditions, however, uncovers some features of the dynamic setup. The number of ignorant consumers, γ, decreases with the passage of time. Therefore, under the primacy effect the equilibrium advertising intensities gradually converge to zero. Under the recency effect the firms advertise more at the beginning, but their equilibrium advertising intensities will always be bounded away from zero.