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Optimal Brand and Generic Advertising Policies in a Dynamic Differentiated Product Oligopoly

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  • Tchumtchoua, Sylvie
  • Cotterill, Ronald
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    Abstract

    In 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 Info

    Paper provided by University of Connecticut, Food Marketing Policy Center in its series Research Reports with number 149978.

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    Date of creation: Mar 2010
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    Handle: RePEc:ags:uconnr:149978

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    Related research

    Keywords: brand advertising; generic advertising; dynamic oligopoly; Markov perfect equilibrium; Bayesian analysis; Marketing;

    References

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    1. Chintagunta, Pradeep K & Jain, Dipak C, 1995. "Empirical Analysis of a Dynamic Duopoly Model of Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(1), pages 109-31, Spring.
    2. Mario J. Miranda & Paul L. Fackler, 2004. "Applied Computational Economics and Finance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633094, January.
    3. Sofia Berto Villas-Boas, 2007. "Vertical Relationships between Manufacturers and Retailers: Inference with Limited Data," Review of Economic Studies, Oxford University Press, vol. 74(2), pages 625-652.
    4. Philip R. Vande Kamp & Harry M. Kaiser, 2000. "Optimal Temporal Policies in Fluid Milk Advertising," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(2), pages 274-286.
    5. Gary M. Erickson, 1992. "Empirical Analysis of Closed-Loop Duopoly Advertising Strategies," Management Science, INFORMS, vol. 38(12), pages 1732-1749, December.
    6. Frank M. Bass & Anand Krishnamoorthy & Ashutosh Prasad & Suresh P. Sethi, 2005. "Generic and Brand Advertising Strategies in a Dynamic Duopoly," Marketing Science, INFORMS, vol. 24(4), pages 556-568, February.
    7. Blisard, Noel & Blayney, Donald P. & Chandran, Ram & Allshouse, Jane E., 1999. "Analyses of Generic Dairy Advertising, 1984-97," Technical Bulletins 33554, United States Department of Agriculture, Economic Research Service.
    8. Jean-Pierre Dubé & Günter Hitsch & Puneet Manchanda, 2005. "An Empirical Model of Advertising Dynamics," Quantitative Marketing and Economics, Springer, vol. 3(2), pages 107-144, June.
    9. J. Miguel Villas-Boas & Russell S. Winer, 1999. "Endogeneity in Brand Choice Models," Management Science, INFORMS, vol. 45(10), pages 1324-1338, October.
    10. 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.
    11. John Crespi & Stéphan Marette, 2002. "Generic Advertising and Product Differentiation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(3), pages 691-701.
    12. Sorger, Gerhard, 1989. "Competitive dynamic advertising : A modification of the Case game," Journal of Economic Dynamics and Control, Elsevier, vol. 13(1), pages 55-80, January.
    13. Kinnucan, Henry W., 1986. "Demographic Versus Media Advertising Effects On Milk Demand: The Case Of The New York City Market," Northeastern Journal of Agricultural and Resource Economics, Northeastern Agricultural and Resource Economics Association, vol. 15(1), April.
    14. repec:ags:mareec:48626 is not listed on IDEAS
    15. Philip R. Vande Kamp & Harry M. Kaiser, 1999. "Irreversibility in Advertising-Demand Response Functions: An Application to Milk," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(2), pages 385-396.
    16. Eugene Jones & Ronald W. Ward, 1989. "Effectiveness of generic and brand advertising on fresh and processed potato products," Agribusiness, John Wiley & Sons, Ltd., vol. 5(5), pages 523-536.
    17. Pradeep K. Chintagunta & Naufel J. Vilcassim, 1992. "An Empirical Investigation of Advertising Strategies in a Dynamic Duopoly," Management Science, INFORMS, vol. 38(9), pages 1230-1244, September.
    18. Jonq-Ying Lee & Mark G. Brown, 1992. "Lag structures in commodity advertising research," Agribusiness, John Wiley & Sons, Ltd., vol. 8(2), pages 143-154.
    19. Chakravarti, Amitav & Janiszewski, Chris, 2004. " The Influence of Generic Advertising on Brand Preferences," Journal of Consumer Research, University of Chicago Press, vol. 30(4), pages 487-502, March.
    20. C. Lanier Benkard, 2004. "A Dynamic Analysis of the Market for Wide-Bodied Commercial Aircraft," Review of Economic Studies, Oxford University Press, vol. 71(3), pages 581-611.
    21. Pakes, Ariel & McGuire, Paul, 2001. "Stochastic Algorithms, Symmetric Markov Perfect Equilibrium, and the 'Curse' of Dimensionality," Econometrica, Econometric Society, vol. 69(5), pages 1261-81, September.
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    Cited by:
    1. Li, Xun & Lopez, Rigoberto A., 2012. "Spillover Effects of TV Advertising: The Case of Carbonated Soft Drinks," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124724, Agricultural and Applied Economics Association.

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