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An Empirical Analysis of Dynamic, Nonprice Competition in an Oligopolistic Industry

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Author Info
Mark J. Roberts
Larry Samuelson

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Abstract

This article develops a dynamic model of nonprice competition in an oligopolistic industry and uses it to analyze advertising competition in the U.S. cigarette industry. The model generalizes existing studies by allowing advertising to affect both firm market shares and the total size of the market. The model also allows dynamic conjectural variations to arise from the intertemporal links created by the durability of advertising. We use these dynamic conjectural variations to distinguish alternative models of competitive interaction. We estimate the complete model of firm production, demand, and advertising choice by using data for U.S. cigarette producers. The results indicate that firm advertising primarily affects the level of market demand, with a firm's effect on rival firms' market shares arising through variations in the number of brands sold. Empirical results on firm behavior suggest that firms act as if their advertising choices will alter the future advertising choices of rival firms in both the high-tar and low-tar cigarette markets.

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File URL: http://links.jstor.org/sici?sici=0741-6261%28198822%2919%3A2%3C200%3AAEAODN%3E2.0.CO%3B2-W&origin=repec
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Publisher Info
Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 19 (1988)
Issue (Month): 2 (Summer)
Pages: 200-220
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Handle: RePEc:rje:randje:v:19:y:1988:i:summer:p:200-220

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  1. Lynn Hunnicutt & David Aadland, 2002. "Market Power with Dynamic Invertory Constraints: The Bias in Standard Measures," Working Papers 2002-15, Utah State University, Department of Economics. [Downloadable!]
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  2. Henry Saffer & Frank Chaloupka, 1999. "Tobacco Advertising: Economic Theory and International Evidence," NBER Working Papers 6958, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Richards, Timothy J. & Patterson, Paul M., 2002. "Strategic Interaction With Multiple Tools: A New Empirical Model," Working Papers 28545, Arizona State University, Morrison School of Agribusiness and Resource Management. [Downloadable!]
  4. Ron Jarmin, 1993. "Learning By Doing And Competition In The Early Rayon Industry," Working Papers 93-4, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
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  5. Wang, Shinn-Shyr & Stiegert, Kyle W. & Dhar, Tirtha, 2005. "Strategic Pricing Behavior under Asset Value Maximization," 2005 Annual meeting, July 24-27, Providence, RI 19198, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  6. Giovanni Immordino, 2002. "no Logo," CSEF Working Papers 77, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
  7. John Sutton, 1996. "Game Theoretical Models of Market Structure," STICERD - Economics of Industry Papers 15, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
  8. M. Espinosa & Petr Mariel, 2001. "A model of optimal advertising expenditures in a dynamic duopoly," Atlantic Economic Journal, International Atlantic Economic Society, vol. 29(2), pages 135-161, June. [Downloadable!] (restricted)
  9. Wang, Shinn-Shyr & Stiegert, Kyle W., 2006. "The Duopolistic Firm with Endogenous Risk Control: Case of Persuasive Advertising and Product Differentiation," Staff Paper Series 496, University of Wisconsin, Agricultural and Applied Economics. [Downloadable!]
  10. Manel Antelo, 2002. "Complementaries and commitment in a Cournot setting," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 17(1), pages 3-36. [Downloadable!]
  11. Petr Mariel & Joel Sandonís, 2004. "A model of advertising with application to the German automobile industry," Applied Economics, Taylor and Francis Journals, vol. 36(1), pages 83-92, January. [Downloadable!] (restricted)
  12. Putsis, William P., Jr., 1998. "Empirical Analysis of Competitive Interaction in Food Product Categories," Research Reports 25221, University of Connecticut, Food Marketing Policy Center. [Downloadable!]
  13. Rosemary J. Avery & Donald S. Kenkel & Dean R. Lillard & Alan D. Mathios, 2006. "Regulating Advertisements: The Case of Smoking Cessation Products," NBER Working Papers 12001, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Salvador Valdés, 2002. "Pricing and Marketing Rules with Brand Loyalty," Documentos de Trabajo 210, Instituto de Economía. Pontificia Universidad Católica de Chile.. [Downloadable!]
  15. William N. Evans & Jeanne S. Ringel, 1997. "Can Higher Cigarette Taxes Improve Birth Outcomes?," NBER Working Papers 5998, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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