Optimal Brand and Generic Advertising Policies in a Dynamic Differentiated Product Oligopoly
AbstractIn some product categories, generic advertising is used to increase market demand of the category and at the same time brand advertising is used to entice consumers to choose the advertised brand over competing brands. This paper empirically investigates the optimal levels of brand and generic advertising in a dynamic differentiated product oligopoly. A nested logit demand system incorporating brand and generic advertising goodwill stocks is specified and estimated without imposing any supply-side restrictions. Demand side parameters are then used to calibrate a dynamic game of brand and generic advertising that takes into account the vertical relationship between manufacturers and retailers. Estimates from the fluid milk product category indicate that brand advertising is effective for increasing brand level demand and generic advertising has a differential effect on individual brands. On the supply side, we found that it is not optimal for brand manufacturers to advertise in the presence of generic advertising.
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Bibliographic InfoPaper provided by University of Connecticut, Food Marketing Policy Center in its series Research Reports with number 149978.
Date of creation: Mar 2010
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brand advertising; generic advertising; dynamic oligopoly; Markov perfect equilibrium; Bayesian analysis; Marketing;
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