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Advertising and endogenous exit in a differentiated duopoly

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  • MANTOVANI, Andrea
  • MION, Giordano

Abstract

In 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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Suggested Citation

  • MANTOVANI, Andrea & MION, Giordano, 2006. "Advertising and endogenous exit in a differentiated duopoly," LIDAM Reprints CORE 1863, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:1863
    DOI: 10.3917/rel.721.0019
    Note: In : Recherches Economiques de Louvain, 72(1), 19-47, 2006
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    Cited by:

    1. Ma, Jie & Ulph, Alistair, 2004. "Advertising in a differentiated duopoly and its policy implications for an open economy," Discussion Paper Series In Economics And Econometrics 406, Economics Division, School of Social Sciences, University of Southampton.
    2. Ma, Jie & Ulph, Alistair, 2004. "Advertising in a differentiated duopoly and its policy implications for an open economy," Discussion Paper Series In Economics And Econometrics 0406, Economics Division, School of Social Sciences, University of Southampton.

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    JEL classification:

    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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