No CrossRef data available.
Article contents
Advertising and endogenous exit in a differentiatedduopoly
Published online by Cambridge University Press: 17 August 2016
Summary
In this paper we consider a two-stage duopoly game where firms first decidewhether to invest in advertising and then compete in prices. Advertising hastwo effects: a market enlargement for both firms and a predatory gain forthe investing firm only.
Both symmetric and asymmetric equilibria may arise. The two most interestingcases are a coordination game where both firms investingand non-investing are equilibria, and a chicken game whereonly one firm invests while the other is possibly driven (endogenously) outof the market. Our results suggest that product differentiation has anambiguous impact on investment in advertising and that strong productsubstitutabihty may induce a coordination problem.
Résumé
Dans cet article nous considérons un jeu de duopole en deux étapes, danslequel les entreprises décident d'abord si elles souhaitent investir dans lapublicité, puis se concurrencent ensuite en prix. Nous montrons que lapublicité a deux effets : d'une part, elle élargie le marché pour les deuxentreprises, et d'autre part, elle redirige une partie de la demande vers leproduit publicisé.
Nous obtenons, en fonction des paramètres, des équilibres symétrique etasymétriques. Les deux cas les plus intéressants sont un jeu decoordination, où les deux entreprises peuvent simultanément investir ou nepas investir, et un jeu chicken, où seule l'une des deux entreprisesinvestie tandis que l'autre peut éventuellement sortir (de manière endogène)du marché. Nos résultats suggèrent que la différenciation des produits joueun rôle ambigu sur l'investissement en publicité et qu'une substituabilitéforte entre produits peut donner lieu à un problème de coordination.
Keywords
Information
- Type
- Research Article
- Information
- Recherches Économiques de Louvain/ Louvain Economic Review , Volume 72 , Issue 1 , 2006 , pp. 19 - 47
- Copyright
- Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 2006
Footnotes
*
We thank Rabah Amir, Claude d'Aspremont, Luca Lambertini, Jacques Thisse, Vincent Vannetelbosch, Xavier Wauthy as well as two ananymous referees for useful comments and suggestions. We are also grateful to seminar participants at the University of Bologna, the 2003 SMYE and the 2003 EARIE meeting. Both authors gratefully acknowledge financial support from CORE. The usual disclaimer applies.
**
CORE, Université Catholique de Louvain, 34 Voie du Roman Pays, B-1348, Louvain-la-Neuve, Belgium. Department of Economics, University of Bologna, Strada Maggiore 45,1-40125 Bologna, Italy. mantovani@core.ucl.ac.bemantovan@spbo.unibo.itmion@core.ucl.ac.be
References
Amir, R.
(2000), “R&D Returns, Market Structure,
and Research Joint Venture”, Journal of
Institutional and Theoretical Economics, 4, pp.
583–598.Google Scholar
Bagwell, K. and
Ramey, G.
(1988), “Advertising and Limit
Pricing”, Rand Journal of Economics,
19, pp.
59–71.Google Scholar
Bagwell, K. and
Ramey, G.
(1990), “Advertising and Pricing to Deter or
Accommodate Entry When Demand is Unknown”,
International Journal of Industrial Organization,
8, pp.
93–113.Google Scholar
Butters, G.
(1977), “Equilibrium distribution of prices
and advertising”, Review of Economic
Studies, 44, pp.
465–491.Google Scholar
Dixit, A. and
Norman, V.
(1978), “Advertising and
Welfare”, The Bell Journal of Economics,
9, pp.
1–17.Google Scholar
Friedman, J.W.
(1983), “Advertising and Oligopolistic
Equilibrium”, Bell Journal of Economics,
14, pp.
464–473.Google Scholar
Grossman, G.M. and
Shapiro, C.
(1984), “Informative advertising with
differentiated products”, Review of Economic
Studies, 51, pp.
63–81.Google Scholar
Ishigaki, H.
(2000), “Informative advertising and entry
deterrence : a Bertrand model”, Economics
Letters, 67, pp.
337–343.Google Scholar
Kaldor, N.
(1950), “The Economic Aspects of
Advertising”, Review of Economic
Studies, 18, pp.
1–27.Google Scholar
Milgrom, P. and
Roberts, J.
(1986), “Price and Advertising Signals of
Product Quality”, Jounal of Political
Economy, 94, pp.
796–821.Google Scholar
Muehling, D.
Stoltman, J. and
Grossbart, S.
(1990), “The Impact of Comparative
Advertising on Levels of Message Involvement”,
Journal of Advertising, 19, pp.
41–50.Google Scholar
Nelson, P.
(1974), “Advertising as
Information”, Journal of Political
Economy, 82, pp.
729–754.Google Scholar
Piga, C.
(1998), “A Dynamic Model of Advertising and
Product Differentiation”, Review of Industrial
Organization, 13, pp.
509–522.Google Scholar
Schmalensee, R.
(1978), “A model of Advertising and Product
Quality”, Journal of Political Economy,
86, pp.
486–503.Google Scholar
Schmalensee, R.
(1983), “Advertising and entry deterrence :
an exploratory model”, Journal of Political
Economy, 91, pp.
636–653.Google Scholar
Shubik, M. and
Levitan, R.
(1980), Market Structure and Behavior,
Harvard University Press,
Cambridge, Mass.Google Scholar
Von der
Fehr, N.-H. and Stevik, K.
(1998), “Persuasive Advertising and product
Differentiation”, Southern Economic
Journal, 65(1), pp.
113–126.Google Scholar
Wolinsky, A.
(1984), “Product differentiation with
imperfect information”, Review of Economic
Studies, 51, pp.
53–61.Google Scholar