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Cournot and Bertrand Competition when Advertising Rotates Demand: The Case of Honda and Scion

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  • Victor J. Tremblay
  • Carol Horton Tremblay
  • Kosin Isariyawongse

Abstract

We develop a model to explain why firm behavior differs in the market for small cars. Firms such as Honda compete in output (Cournot) and produce marketing campaigns with universal appeal, while firms such as Scion compete in price (Bertrand) and produce targeted marketing campaigns. We show that this mixture of Cournot and Bertrand behavior can occur when advertising rotates demand. When behaving as a Cournot-type firm such as Honda, it is more profitable to pursue a mass-market advertising campaign that rotates demand counterclockwise when it faces relatively low unit costs and a flat demand function. When behaving as a Bertrand-type firm such as Scion, it pays to pursue a niche-market advertising campaign that rotates demand clockwise when it faces relatively high unit costs and a steep demand .

Suggested Citation

  • Victor J. Tremblay & Carol Horton Tremblay & Kosin Isariyawongse, 2013. "Cournot and Bertrand Competition when Advertising Rotates Demand: The Case of Honda and Scion," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 20(1), pages 125-141, February.
    • Handle: RePEc:taf:ijecbs:v:20:y:2013:i:1:p:125-141
    DOI: 10.1080/13571516.2012.750045
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    References listed on IDEAS

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    1. Justin P. Johnson & David P. Myatt, 2006. "On the Simple Economics of Advertising, Marketing, and Product Design," American Economic Review, American Economic Association, vol. 96(3), pages 756-784, June.
    2. Hackner, Jonas, 2000. "A Note on Price and Quantity Competition in Differentiated Oligopolies," Journal of Economic Theory, Elsevier, vol. 93(2), pages 233-239, August.
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    Cited by:

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    3. Manasakis, Constantine & Vlassis, Minas, 2014. "Downstream mode of competition with upstream market power," Research in Economics, Elsevier, vol. 68(1), pages 84-93.
    4. Basak, Debasmita, 2021. "Cournot-Bertrand equilibria under two-part tariff contract," MPRA Paper 109588, University Library of Munich, Germany.
    5. Semenov, Aggey & Tondji, Jean-Baptiste, 2019. "On the Dynamic Analysis of Cournot–Bertrand Equilibria," Economics Letters, Elsevier, vol. 183(C), pages 1-1.
    6. Malcolm Brady, 2022. "Asymmetric Horizontal Differentiation under Advertising in a Cournot Duopoly," Games, MDPI, vol. 13(3), pages 1-14, May.
    7. Luciano Fanti & Domenico Buccella, 2021. "Strategic trade policy with interlocking cross-ownership," Journal of Economics, Springer, vol. 134(2), pages 147-174, October.
    8. Bian, Junsong & Lai, Kin Keung & Hua, Zhongsheng & Zhao, Xuan & Zhou, Guanghui, 2018. "Bertrand vs. Cournot competition in distribution channels with upstream collusion," International Journal of Production Economics, Elsevier, vol. 204(C), pages 278-289.
    9. Chang Ray-Yun & Hu Jin-Li & Lin Yan-Shu, 2018. "The Choice of Prices versus Quantities under Outsourcing," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 18(2), pages 1-20, July.
    10. Fujisawa, Chieko & Kasuga, Norihiro, 2023. "Complementarity Effect of Corporate Advertising in a Multimedia World: A Comparison of Online Advertising and Mass Media Advertising," 32nd European Regional ITS Conference, Madrid 2023: Realising the digital decade in the European Union – Easier said than done? 277960, International Telecommunications Society (ITS).
    11. Yasuhiko Nakamura, 2022. "Corporate social responsibility and endogenous competition structure in an industry composed of firms with biased managers," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 69(2), pages 301-321, June.
    12. Anne-Christine Barthel & Eric Hoffmann, 2020. "On the existence and stability of equilibria in N-firm Cournot–Bertrand oligopolies," Theory and Decision, Springer, vol. 88(4), pages 471-491, May.
    13. Ray-Yun Chang & Yan-Shu Lin & Jin-Li Hu, 2015. "Mixed Competition and Patent Licensing," Australian Economic Papers, Wiley Blackwell, vol. 54(4), pages 229-249, December.
    14. Duarte Brito & Margarida Catalão-Lopes, 2023. "Profit raising entry under mixed behavior," Journal of Economics, Springer, vol. 138(1), pages 51-72, January.
    15. Nicola Meccheri, 2021. "Biased managers in vertically related markets," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(3), pages 724-736, April.
    16. Nicola Meccheri, 2019. "Biased managers in a vertical structure," Working Paper series 19-12, Rimini Centre for Economic Analysis.
    17. Minas Vlassis & Stefanos Mamakis, 2016. "Is Price Competition More Efficient than Quantity Competition? A Reversal with Unionized Oligopolists," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 49(1), pages 103-126, August.
    18. Elizabeth Schroeder & Victor J. Tremblay, 2014. "Union Bargaining in an Oligopoly Market with Cournot-Bertrand Competition: Welfare and Policy Implications," Economies, MDPI, vol. 2(2), pages 1-14, March.
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    20. Hong-Ren Din & Chia-Hung Sun, 2023. "Centralized or decentralized bargaining in a vertically-related market with endogenous price/quantity choices," Journal of Economics, Springer, vol. 138(1), pages 73-94, January.

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