Achieving the Optimal Balance Between Investment in Quality and Investment in Self-Promotion for Information Products

• Authors: Ravi Aron;Eric K. Clemons
• Venue: Journal of Management Information Systems
• Year: 2001

When producers of goods (or services) are confronted by a situation in which their offerings no longer perfectly match consumer preferences, they must determine the extent to which the advertised features of the product reflect the product's actual attributes. We find that the two important determinants of sellers' advertising strategy are the Repeg Cost Ratio, and the Repeat Sales Coefficient. The interplay of these two factors gives rise to four possible strategic scenarios. We show that sellers' strategy is clearly explainable in three out of these four scenarios. In the ambiguous fourth scenario, we show that sellers' strategy for information production goods will differ considerably from information consumption goods based on product complexity and cost of product return (borne by the buyer). Finally, we demonstrate that markets are often characterized by self-reinforcing limits on the extent of opportunistic advertising by sellers.