Persuading consumers with social attitudes

This paper provides a formal analysis of persuasive advertising when firms compete for consumers with heterogenous social attitudes towards the consumption by others. Deriving product demand from primitives, we show that the demand-enhancing effect of persuasive advertising varies across consumers and increases in the average degree of conformity. In equilibrium, both quality and cost leaders choose higher advertising intensities and charge higher prices than their competitors. In addition, we show that an increase in the average degree of conformity among consumers reinforces asymmetries between firms.

► We analyze persuasive advertising when firms compete for consumers with heterogenous social attitudes.
► Demand functions depend on the weight of the extrinsic utility and the average degree of conformity.
► The demand-enhancing effect of persuasive advertising varies across consumers.
► The demand-enhancing effect of persuasive advertising increases in the average degree of conformity.
► The asymmetry in equilibrium pricing and advertising increases in the average degree of conformity.