Generic and brand advertising strategies in a dynamic duopoly

    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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