Advertising competition with associative memory

This paper studies advertising competition when consumers rely on associative memory. Memory is modeled as a network in which brands become linked to value relevant concepts through repeated exposure, and advertising operates by triggering recall. In this environment, communication shapes consideration sets by determining which brands and attributes are jointly brought to mind. In contrast to belief-based persuasion models, communication in our setting is effective even when it conveys little or no new information, as long as it succeeds in inducing recall of the brand together with a value-relevant concept. The paper shows that firms face a trade-off when emphasizing product benefits. Associating a brand with value is necessary to encourage consideration, but doing so may also activate competing brands through shared memory links, intensifying competition. As a result, firms may optimally rely on uninformative advertising: once associations are established, simple brand reminders can sustain relevance while limiting competitive spillovers. When advertising effectiveness is intermediate, however, firms are forced to emphasize value, leading to joint recall and heightened competition. As a result, firms’ profits depend non-monotonically on advertising effectiveness. We further show that utility-irrelevant associations – such as colors, mascots, or symbols – may allow firms to circumvent this trade-off: By linking these cues to value during earlier communication, firms can later use them to trigger recall without activating competing brands, thereby softening competition and increasing profits.