Coordination economies, advertising, and search behaviour in retail markets by Kyle Bagwell and Garey Ramey: a comment
Kyle Bagwell and Garey Ramey (1994), hence (BR), address themselves to a challenging task. It is to make sense of the fact that advertising which is “ostensibly uninformative” can nevertheless promote sales. Nor are they content with this effort, no matter how formidable in and of itself. In addition, they impose a side order constraint upon themselves that their explanation must be steeped in rationality. That is, not for them an elucidation based on consumer ignorance or superstition. On the contrary, there must be “method” in what would otherwise appear to be the madness of customers flocking to firms which fail to provide hard information on prices, qualities, guarantees, etc.