Just to clarify, I laid out a fictitious model where you have a perfectly efficient market with regards to some product. Under those constraints, you'd expect c

Just to clarify, I laid out a fictitious model where you have a perfectly efficient market with regards to some product. Under those constraints, you'd expect cost plus a penny. In the real world, human behavior, signals, etc. make it more complex (which is why behavioral economics was created). But I can imagine a case where the Nash Eq. doesn't settle at the absolute bottom price. Perhaps consumers don't care about price alone. Like you pointed out as well, if they interpret advertising as a trustworthy signal, then a business is forced to run ads. Undercutting others with a low price, by not running ads would in that hypothetical situation signal low quality. (Maybe a better example would be a bank in a trailer park vs. a bank in one of those beautifully designed buildings.) But all those cost can be factored into things like CAC, COGS, SG&A etc. Edit: There aren't that many studies on credibility and advertising but you might find this one interesting: https://getd.libs.uga.edu/pdfs/soh_hyeonjin_200608_phd.pdf https://getd.libs.uga.edu/pdfs/soh_hyeonjin_200608_phd.pdf