Advertising as signal jamming

Abstract

This paper considers a model of informative advertising that allows firms to jam the consumers’ signals on product quality before choosing prices at a second stage. We find that the price competition at the second stage may overrule the basic insights from the signal-jamming approach in other areas of application. As a consequence, a firm may advertise more intensely the higher is the difference of the expected product qualities. Moreover, a firm’s optimal advertising intensity can decrease with quality uncertainty.