Advertising, Authenticity, and Strategic Signaling in Asymmetric Markets

Author : Meet Bhardwaj

Abstract :advertising to signal product quality—even under constraints of authenticity and consumer skepticism? This paper explores a novel theoretical model that combines classical signaling theory with insights from contemporary consumer psychology to examine how authenticity and advertising interact in asymmetric markets. Building on the foundation of Spence’s signaling framework and classic advertisingas-signal literature, we incorporate a key behavioral feature: a non-monotonic consumer belief response to advertising. Empirical findings suggest that moderate advertising signals confidence and quality, but excessive advertising may be viewed with skepticism. We model this inverted-U shaped belief response using a Gaussian functional form, where the effectiveness of advertising peaks at an optimal level and declines thereafter. We introduce brand authenticity as a firmspecific multiplier in the belief function. A firm perceived as more authentic can generate higher consumer trust per unit of advertising. This framework shows that a smaller, budget-constrained firm with higher authenticity can outperform a larger firm with greater resources but lower authenticity. By fixing the large firm’s price, we avoid the complexity of multi-stage gametheoretic analysis while preserving strategic optimization on the small firm’s part. This work advances signaling theory by formally integrating authenticity into the belief mechanism and offering a tractable model of how credibility and budget constraints interact. The findings have implications for small businesses who face challenges of sustainability, especially when they are challenged by big and already well-established competitors. Our findings offer implications for emerging brands navigating credibility challenges and contribute to the broader literature on asymmetric competition, advertising effectiveness, and behavioral trust formation.

Keywords :Advertising, product quality, authenticity, signaling theory, consumer trust, asymmetric markets

Conference Name :International Conference on Business and Management (ICBM-25)

Conference Place Udaipur, India

Conference Date 6th Jul 2025