How do competitors react to each other's price-promotion and advertising actions? How do these reactions influence the net sales impact we observe? We answer these questions by performing a large-scale empirical study of the short-run and long-run reactions to promotion and advertising shocks in over 400 consumer product categories, over a four-year time span. Competitive reaction can be passive, accommodating or retaliatory. We first develop a series of expectations on the type and intensity of reaction behavior, and on the moderators of this behavior. These expectations are assessed in two ways. First, vector-autoregressive models quantify the short-run and long-run effect of a promotion or advertising action on competitive sales and on competitive reactions. By cataloging the numerical results, we are able to formulate empirical generalizations of reaction behavior ("how do they react?"). Second, we estimate structural models of reaction intensity, in function of various market and competitive characteristics ("what are the drivers of reaction?"). Finally, by comparing our findings on reaction behavior with those on promotion and advertising effectiveness, we are able to evaluate competitive reaction behavior ("are they reacting as they should?"). A major finding is that competitive reaction is predominantly passive. When it is present, it is usually retaliatory in the same instrument, but accommodating or retaliatory in a different instrument. There are very few long-run consequences of any type of reaction behavior. We also report on several moderating effects that are in line with expectations, and that support the presence of a certain amount of rationality in competitive reaction behavior. The net impact of the over-time effects of advertising and price-promotion attacks, competitive reactions and the sales effectiveness of each, is that competitors' sales are generally not affected, and especially not in the long run. We weigh the evidence that this sales neutrality is "natural" (i.e., due to the nature of consumer response) versus "managed" (i.e., due to the vigilance and effectiveness of competitors), and conclude in favor of the former.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam. in its series Research Paper with number
ERS-2002-20-MKT Revision_Date: 2009-07-29.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Did you know? Citation analysis on IDEAS includes online papers that are freely accessible and whose text could be automatically analyzed, currently about 210000 papers.