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Dynamic model of advertising and product differentiation

journal contribution
posted on 30.05.2006 by Claudio Piga
This paper analyses a differential game of duopolistic rivalry through time where firms can use advertising and price as competitive tools. Two cases are considered whereby: (1) advertising has the main effect of increasing market size and firms differ in production efficiency; (2) advertising has both predatory and cooperative effects in a symmetric market. The former shows that market shares and advertising shares are positively correlated and that market size increases with the difference in firms’ relative efficiency. The latter highlights the differences in the feedback and open-loop strategies. It is shown that firms’ advertising are strategic complements and that profits are higher in the feedback equilibrium because firms advertise more. The applicability of the model in markets where franchise contracts and dealership agreements operate is also discussed.

History

School

  • Business and Economics

Department

  • Economics

Pages

99072 bytes

Citation

PIGA, C. A., 1998. Dynamic model of advertising and product differentiation. Review of Industrial Organization, 13, pp.509-522.

Publisher

© Kluwer (Springer)

Publication date

1998

Notes

This is Restricted Access. This article was published in the journal, Review of Industrial Organization [© Springer] and it is available at: http://www.springerlink.com/openurl.asp?genre=journal&issn=0889-938X.

ISSN

0889-938X

Language

en

Exports

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Keyword(s)

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