ASYMMETRIC MARKET SHARES, ADVERTISING AND PRICING: EQUILIBRIUM WITH AN INFORMATION GATEKEEPER

We analyze how asymmetric market shares impact advertising and pricing decisions by firms that have loyal, non-shopping customers and can advertise to shoppers through a 'gatekeeper.' In equilibrium, the firm with the smaller loyal market advertises more aggressively but prices less competitively than the firm with the larger loyal market. Our results differ significantly from earlier literature which assumes that shoppers observe all prices and finds that the firm with the smaller loyal market adopts a more competitive pricing strategy. The predictions of the model are consistent with advertising and pricing behavior observed on price comparison websites such as http://Shopper.com.