Advertising and endogenous exit in a differentiated duopoly
AbstractIn this paper we consider a two-stage duopoly game where fîrrns 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 investinent in advertising and that strong product substitutability may induce a coordination problem.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (REL - Recherches Economiques de Louvain) with number 2006012.
Date of creation: 01 Mar 2006
Date of revision:
Advertising; product differenciation; endogenous exit; asymmetric equilibria; coordination games;
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.
- 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).
- MANTOVANI, Andrea & MION, Giordano, . "Advertising and endogenous exit in a differentiated duopoly," CORE Discussion Papers RP -1863, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- A. Mantovani & G. Mion, 2002. "Advertising and Endogenous Exit in a Differentiated Duopoly," Working Papers 455, Dipartimento Scienze Economiche, Universita' di Bologna.
- D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
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