The unique equilibrium in a model of sales with costly advertising

- We incorporate costly advertising in Varian's (1980) model of sales.
- We show that a unique equilibrium exists, and that this equilibrium is symmetric.
- In contrast, multiple asymmetric equilibria exist with no advertising cost.
- The equilibrium becomes less competitive as the advertising cost increases.

We demonstrate that the Varian (1980) model of sales has a unique Nash equilibrium when firms incur costly advertising to compete for informed consumers. The equilibrium is symmetric. In particular, with costly advertising, the asymmetric equilibria highlighted by Baye et al. (1992) do not arise.