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An oligopoly model of dynamic advertising competition

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  • Erickson, Gary M.

Abstract

An oligopoly model is presented that allows the determination of feedback Nash equilibrium advertising strategies for an oligopoly. Analyses of symmetric and asymmetric oligopolies with the model show that unit contribution and advertising effectiveness have positive effects on a competitor's own advertising and steady-state sales, while discount rate and decay rate have negative effects. An asymmetric analysis further shows that unit contribution and advertising effectiveness affect positively, and discount rate and decay rate negatively, a competitor's rivals' advertising, but have effects in opposite directions regarding rivals' steady-state sales. The symmetric and asymmetric analyses also show that steady-state sales per competitor decline with the number of competitors in the oligopoly, while total oligopoly steady-state sales increase. The model is applied empirically to the triopolistic competition involving Anheuser-Busch, SABMiller, and Molson Coors in the beer industry.

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  • Erickson, Gary M., 2009. "An oligopoly model of dynamic advertising competition," European Journal of Operational Research, Elsevier, vol. 197(1), pages 374-388, August.
    • Handle: RePEc:eee:ejores:v:197:y:2009:i:1:p:374-388
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    6. Gary M. Erickson, 2009. "Advertising Competition in a Dynamic Oligopoly with Multiple Brands," Operations Research, INFORMS, vol. 57(5), pages 1106-1113, October.
    7. Dengpan Liu & Subodha Kumar & Vijay S. Mookerjee, 2012. "Advertising Strategies in Electronic Retailing: A Differential Games Approach," Information Systems Research, INFORMS, vol. 23(3-part-2), pages 903-917, September.
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