Title

Generic and brand advertising strategies in a dynamic duopoly

Authors

Authors

F. M. Bass; A. Krishnamoorthy; A. Prasad;S. P. Sethi

Comments

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Abbreviated Journal Title

Mark. Sci.

Keywords

advertising; generic advertising; differential games; dynamic duopoly; optimal control; OPTIMAL-CONTROL MODELS; EMPIRICAL-ANALYSIS; DIFFERENTIAL-GAMES; COMPETITION; OLIGOPOLY; SALES; Business

Abstract

To increase the sales of their products through advertising, firms must integrate their brand-advertising strategy for capturing market share from competitors and their generic-advertising strategy for increasing primary demand for the category. This paper examines whether, when, and how much brand advertising versus generic advertising should be done. Using differential game theory, optimal advertising decisions are obtained for a dynamic duopoly with symmetric or asymmetric competitors. We show how advertising depends on the cost and effectiveness of each type of advertising for each firm, the allocation of market expansion benefits, and the profit margins determined endogenously from price competition. We find that generic advertising is proportionally more important in the short term and that there are free-riding effects leading to suboptimal industry expenditure on generic advertising that worsen as firms become more symmetric. Due to free-riding by the weaker firm, its instantaneous profit and market share can actually be higher. The effectiveness of generic advertising and the allocation of its benefits, however, have little effect on the long-run market shares, which are determined by brand-advertising effectiveness. Extensions of the model show that market potential saturation leads to a decline in generic advertising over time.

Journal Title

Marketing Science

Volume

24

Issue/Number

4

Publication Date

1-1-2005

Document Type

Article

Language

English

First Page

556

Last Page

568

WOS Identifier

WOS:000234322500004

ISSN

0732-2399

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