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Goodwill and dynamic advertising strategies

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Author Info

  • Toker Doganoglu

    ()

  • Daniel Klapper

    ()

Abstract

In this paper, we empirically analyze weekly advertising policies of manufacturing firms in consumer goods markets. We assume firms engage in persuasive advertising, thus policies of firms affect the goodwill of a brand. We introduce a demand and a goodwill production function. A simple transformation of the demand function allows us to identify not only the demand parameters but also the parameters of the goodwill production function. We reconstruct the unobserved goodwill levels using these parameters and past advertising levels. We restrict our attention to Markov Perfect Equilibrium (MPE) strategies which are functions of payoff relevant state variables. Without imposing further restrictions on the dynamic competitive environment, we investigate the relationship between observed advertising strategies—which are assumed to be MPE—and payoff relevant state variables by means of several reduced form specifications. The most important determinant of advertising intensity turns out to be goodwill. We demonstrate that controlling for an advertising campaign significantly improves the explanatory power of the model. Copyright Springer Science + Business Media, LLC 2006

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File URL: http://hdl.handle.net/10.1007/s11129-006-6558-y
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Bibliographic Info

Article provided by Springer in its journal Quantitative Marketing and Economics.

Volume (Year): 4 (2006)
Issue (Month): 1 (March)
Pages: 5-29

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Handle: RePEc:kap:qmktec:v:4:y:2006:i:1:p:5-29

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Web page: http://www.springerlink.com/link.asp?id=111240

Related research

Keywords: Advertising; Goodwill; Markov perfect equilibrium; Dynamic oligopoly;

References

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  18. Mesak, Hani I., 1999. "On the generalizability of advertising pulsation monopoly results to an oligopoly," European Journal of Operational Research, Elsevier, vol. 117(3), pages 429-449, September.
  19. K. Sudhir & Vrinda Kadiyali & Vithala R. Rao, 2001. "Structural Analysis of Manufacturer Pricing in the Presence of a Strategic Retailer," Yale School of Management Working Papers ysm229, Yale School of Management.
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Citations

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Cited by:
  1. C. Clark & Ulrich Doraszelski & Michaela Draganska, 2009. "The effect of advertising on brand awareness and perceived quality: An empirical investigation using panel data," Quantitative Marketing and Economics, Springer, vol. 7(2), pages 207-236, June.
  2. Brett R. Gordon & Wesley R. Hartmann, 2013. "Advertising Effects in Presidential Elections," Marketing Science, INFORMS, vol. 32(1), pages 19-35, June.
  3. Yoau-Chau Jeng & Fei-Rung Chiu, 2010. "Allocation model for theme park advertising budget," Quality & Quantity: International Journal of Methodology, Springer, vol. 44(2), pages 333-343, February.
  4. Sina Henningsen & Rebecca Heuke & Michel Clement, 2011. "Determinants of Advertising Effectiveness: The Development of an International Advertising Elasticity Database and a Meta-Analysis," BuR - Business Research, German Academic Association for Business Research, vol. 4(2), pages 193-239, December.

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