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An Analysis of Advertising Wars

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  • Hans Haller
  • Subhadip Chakrabarti

Abstract

Comparative advertising by one brand against another showcases its merits versus the demerits of the other. In a two-stage game among finitely many firms, firms decide first how much to advertise against whom. In the second stage, given the advertising configuration, firms compete as Cournot oligopolists. In the symmetric case, equilibrium advertising constitutes a clear welfare loss. Equilibrium advertising levels and advertising expenditures decline with rising advertising costs. Whereas equilibrium levels of advertising decrease in the number of firms, aggregate advertising expenditures increase. We further relate effectiveness of advertising to proximity in product space. With two firms, comparative advertising and quality choice have similar effects. In a three stage game, where firms choose first locations (variety), then advertising levels (quality), and then quantities, we obtain maximum horizontal product differentiation and minimum vertical product differentiation.

Suggested Citation

  • Hans Haller & Subhadip Chakrabarti, 2003. "An Analysis of Advertising Wars," Microeconomics 0306005, EconWPA.
  • Handle: RePEc:wpa:wuwpmi:0306005
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    References listed on IDEAS

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    Cited by:

    1. Billand, Pascal & Bravard, Christophe & Chakrabarti, Subhadip & Sarangi, Sudipta, 2010. "Networks of Collaboration in Multi-market Oligopolies," MPRA Paper 28188, University Library of Munich, Germany.
    2. Pascal Billand & Christophe Bravard & Subhadip Chakrabarti & Sudipta Sarangi, 2014. "A note on networks of collaboration in multi-market oligopolies," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 53(2), pages 325-335, September.
    3. Antoine Mandel & Xavier Venel, 2017. "Dynamic competition over social networks Dynamic competition over social networks," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01524453, HAL.
    4. Ahmed, E. & Elettreby, M.F., 2014. "Controls of the complex dynamics of a multi-market Cournot model," Economic Modelling, Elsevier, vol. 37(C), pages 251-254.
    5. Pascal Billand & Christophe Bravard & Subhadip Chakrabarti & Sudipta Sarangi, 2013. "Abram Bergson," Working Papers 1339, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    6. Billand, P. & Bravard, C. & Chakrabarti, S. & Sarangi, S., 2013. "A note on networks collaboration in multi-market oligopolies," Working Papers 2013-05, Grenoble Applied Economics Laboratory (GAEL).
    7. Subhadip Chakrabarti & Hans Haller, 2011. "An Analysis Of Advertising Wars," Manchester School, University of Manchester, vol. 79(1), pages 100-124, January.
    8. Keisuke Hattori & Keisaku Higashida, 2015. "Who Benefits from Misleading Advertising?," Economica, London School of Economics and Political Science, vol. 82(328), pages 613-643, October.
    9. Alipranti, Maria & Mitrokostas, Evangelos & Petrakis, Emmanuel, 2016. "Non-comparative and comparative advertising in oligopolistic markets," DICE Discussion Papers 231, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    10. Hans Gersbach & Hans Haller, 2015. "Matching on Bipartite Graphs," CESifo Working Paper Series 5575, CESifo Group Munich.
    11. Maria Alipranti & Evangelos Mitrokostas & Emmanuel Petrakis, 2013. "Comparative versus Informative Advertising in Oligopolistic Markets," Working Papers 1301, University of Crete, Department of Economics.
    12. Antoine Mandel & Xavier Venel, 2017. "Dynamic competition over social networks," Documents de travail du Centre d'Economie de la Sorbonne 17021, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.

    More about this item

    Keywords

    Advertising; Cournot Oligopoly; Product Differentiation;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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