Multidimensional information and firm strategies

Type/no A02/23
Author Malin Arve, Heiko Karle and Markus Reisinger
In this paper we study how firms consider the multi-dimensionality of information when choosing their communication strategy. We study firm strategies for reacting to consumer- and profit-relevant information in several dimensions. We show that there is a trade-off between adapting the firm strategy to the information that is likely to be the most profitable and differentiating to reduce competitive pressure. The interplay between these forces can
lead to both firms advertising in the same dimension, if competition is not particularly fierce, or one firm choosing the dimension that is not the most profitable one, or sending a general message, to strategically escape competition. In the latter case – i.e., when firms only react partially to the received information – doubling of information is avoided,
which implies that the consumer receives messages that are of interest to her with a higher probability. However, she does not benefit from competition in the market.
Language Written in english