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Optimal Brand and Generic Advertising Policies in a Dynamic Differentiated Product Oligopoly

  • Tchumtchoua, Sylvie
  • Cotterill, Ronald
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    In some product categories, generic advertising is used to increase market demand of the category and at the same time brand advertising is used to entice consumers to choose the advertised brand over competing brands. This paper empirically investigates the optimal levels of brand and generic advertising in a dynamic differentiated product oligopoly. A nested logit demand system incorporating brand and generic advertising goodwill stocks is specified and estimated without imposing any supply-side restrictions. Demand side parameters are then used to calibrate a dynamic game of brand and generic advertising that takes into account the vertical relationship between manufacturers and retailers. Estimates from the fluid milk product category indicate that brand advertising is effective for increasing brand level demand and generic advertising has a differential effect on individual brands. On the supply side, we found that it is not optimal for brand manufacturers to advertise in the presence of generic advertising.

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    File URL: http://purl.umn.edu/149978
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    Paper provided by University of Connecticut, Food Marketing Policy Center in its series Research Reports with number 149978.

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    Date of creation: Mar 2010
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    Handle: RePEc:ags:uconnr:149978
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    14. Blisard, Noel & Blayney, Donald P. & Chandran, Ram & Allshouse, Jane E., 1999. "Analyses of Generic Dairy Advertising, 1984-97," Technical Bulletins 33554, United States Department of Agriculture, Economic Research Service.
    15. Pakes, Ariel & McGuire, Paul, 2001. "Stochastic Algorithms, Symmetric Markov Perfect Equilibrium, and the 'Curse' of Dimensionality," Econometrica, Econometric Society, vol. 69(5), pages 1261-81, September.
    16. Eugene Jones & Ronald W. Ward, 1989. "Effectiveness of generic and brand advertising on fresh and processed potato products," Agribusiness, John Wiley & Sons, Ltd., vol. 5(5), pages 523-536.
    17. Pradeep K. Chintagunta & Naufel J. Vilcassim, 1992. "An Empirical Investigation of Advertising Strategies in a Dynamic Duopoly," Management Science, INFORMS, vol. 38(9), pages 1230-1244, September.
    18. John Crespi & Stéphan Marette, 2002. "Generic Advertising and Product Differentiation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(3), pages 691-701.
    19. M. Espinosa & Petr Mariel, 2001. "A model of optimal advertising expenditures in a dynamic duopoly," Atlantic Economic Journal, International Atlantic Economic Society, vol. 29(2), pages 135-161, June.
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    21. Jean-Pierre Dubé & Günter Hitsch & Puneet Manchanda, 2005. "An Empirical Model of Advertising Dynamics," Quantitative Marketing and Economics, Springer, vol. 3(2), pages 107-144, June.
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    25. Forker, Olan D. & Liu, Donald J., 1989. "Generic Dairy Promotion Economic Research: Past, Present, and Future," Staff Papers 197587, Cornell University, Department of Applied Economics and Management.
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