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Empirical Analysis of Closed-Loop Duopoly Advertising Strategies

Author

Listed:
  • Gary M. Erickson

    (Department of Marketing and International Business DJ-10, University of Washington, Seattle, Washington 98195)

Abstract

Closed-loop (perfect) equilibria in a Lanchester duopoly differential game of advertising competition are used as the basis for empirical investigation. Two systems of simultaneous nonlinear equations are formed, one from a general Lanchester model and one from a constrained model. Two empirical applications are conducted. In one involving Coca-Cola and Pepsi-Cola, a formal statistical testing procedure is used to detect whether closed-loop equilibrium advertising strategies are used by the competitors rather than open-loop strategies. In the second application, involving Anheuser-Busch and Miller, the general model is estimated. Results indicate that closed-loop equilibria better explain dynamic advertising competition than do open-loop equilibria. Also, closed-loop equilibrium advertising strategies implied by model estimates show that competitive advertising levels may or may not be monotonic in market share.

Suggested Citation

  • Gary M. Erickson, 1992. "Empirical Analysis of Closed-Loop Duopoly Advertising Strategies," Management Science, INFORMS, vol. 38(12), pages 1732-1749, December.
  • Handle: RePEc:inm:ormnsc:v:38:y:1992:i:12:p:1732-1749
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    File URL: http://dx.doi.org/10.1287/mnsc.38.12.1732
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