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Advertising and endogenous exit in a differentiated duopoly

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  • Andrea Mantovani
  • Giordano Mion

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.

Suggested Citation

  • 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.
    • Handle: RePEc:cai:reldbu:rel_721_0019
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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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