An Analysis of Advertising Wars
AbstractComparative advertising by one brand against another showcases its merits versus the demerits of the other. In a two-stage game among finitely many firms, firms decide first how much to advertise against whom. In the second stage, given the advertising configuration, firms compete as Cournot oligopolists. In the symmetric case, equilibrium advertising constitutes a clear welfare loss. Equilibrium advertising levels and advertising expenditures decline with rising advertising costs. Whereas equilibrium levels of advertising decrease in the number of firms, aggregate advertising expenditures increase. We further relate effectiveness of advertising to proximity in product space. With two firms, comparative advertising and quality choice have similar effects. In a three stage game, where firms choose first locations (variety), then advertising levels (quality), and then quantities, we obtain maximum horizontal product differentiation and minimum vertical product differentiation.
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Bibliographic InfoPaper provided by EconWPA in its series Microeconomics with number 0306005.
Date of creation: 24 Jun 2003
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Advertising; Cournot Oligopoly; Product Differentiation;
Other versions of this item:
- Hans Haller & Subhadip Chakrabarti, 2003. "An Analysis of Advertising Wars," Industrial Organization 0306002, EconWPA.
- Hans Haller & Subhadip Chakrabarti, 2002. "An Analysis of Advertising Wars," CIE Discussion Papers 2002-03, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-IND-2003-07-04 (Industrial Organization)
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- Keisuke Hattori & Keisaku Higashida, 2012. "Who Benefits from Misleading Advertising?," Discussion Paper Series 85, School of Economics, Kwansei Gakuin University, revised Mar 2012.
- Pascal Billand & Christophe Bravard & Subhadip Chakrabarti & Sudipta Sarangi, 2013. "Abram Bergson," Working Papers 1339, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
- Pascal Billand & Christophe Bravard & Subhadip Chakrabarti & Sudipta Sarangi, 2014. "A Note on Networks of Collaboration in Multi-market Oligopolies," Working Papers halshs-00924990, HAL.
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- Billand, Pascal & Bravard, Christophe & Chakrabarti, Subhadip & Sarangi, Sudipta, 2010. "Networks of Collaboration in Multi-market Oligopolies," MPRA Paper 28188, University Library of Munich, Germany.
- Maria Alipranti & Evangelos Mitrokostas & Emmanuel Petrakis, 2013. "Comparative versus Informative Advertising in Oligopolistic Markets," Working Papers 1301, University of Crete, Department of Economics.
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