Browsing by Author "Wang, Zonghui"

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    The relationship between optimal advertising level and product quality
    (University of New Brunswick, 2015) Wang, Zonghui; Dalkir, Elif
    In this report the relationship between advertising level and quality is studied where advertising level is a random variable drawn from Normal distribution or Beta distribution. Consumers' prior beliefs are updated according to Bayesian rule after observing the level of advertising as a signal. In the previous literature the consumers ' beliefs were considered to be only binary, in contrast we examine the perfect Bayesian Nash equilibrium of a signaling game where consumers' beliefs are continuous. When the marginal cost of a high-quality firm is equal to that of a low-quality firm we derive a pooling equilibrium under both Normal and Beta distributions wherein the low-quality firm has an incentive to mimic the advertising level of the high-quality firm.