Advertising and endogenous exit in a differentiated duopoly
AbstractIn this paper we consider a two-stage duopoly game where firms first decide whether to invest in advertising and then compete in prices. Advertising has two effects: a market enlargement for both firms and a predatory gain for the investing firm only. Both symmetric and asymmetric equilibria may arise. The two most interesting cases are a coordination game where both firms investing and non-investing are equilibria, and a chicken game where only one firm invests while the other is possibly driven (endogenously) out of the market. Our results suggest that product differentiation has an ambiguous impact on investment in advertising and that strong product substitutability may induce a coordination problem.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number -1863.
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Note: In : Recherches Economiques de Louvain, 72(1), 19-47, 2006
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Other versions of this item:
- Andrea Mantovani & Giordano Mion, 2006. "Advertising and endogenous exit in a differentiated duopoly," Recherches économiques de Louvain, De Boeck Université, vol. 72(1), pages 19-48.
- Andrea MANTOVANI & Giordano MION, 2006. "Advertising and endogenous exit in a differentiated duopoly," Discussion Papers (REL - Recherches Economiques de Louvain) 2006012, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
- A. Mantovani & G. Mion, 2002. "Advertising and Endogenous Exit in a Differentiated Duopoly," Working Papers 455, Dipartimento Scienze Economiche, Universita' di Bologna.
- MANTOVANI, Andrea & MION, Giordano, 2003. "Advertising and endogenous exit in a differentiated duopoly," CORE Discussion Papers 2003023, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- M37 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Advertising
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