Informative advertising : competition or cooperation? (original) (raw)
Related papers
Advertising, Product Differentiation and Cooperation
SSRN Electronic Journal, 2000
Collaboration among sizeable competitors is usually considered to be harmful to social welfare while competition among such competitors is perceived the better, or even best, mode of operation. We examine industries where the goods produced are homogeneous and producers employ advertising in order to artificially differentiate the products in the eyes of customers.
Cartels and monopolists can spend insufficient in the welfare sense of Kaldor and Hicks on the promotion of new products. This is likely to occur when the supply of the product is elastic. However, the opposite is likely to be the case when the supply of the product is inelastic. In the latter circumstance, monopolists and cartels gain by rapidly diffusing knowledge about a new product and letting competition among consumers force up its price. The results apply, under the conditions outlined in this paper, to traditional textbook cartels which control supply as well as to promotional cartels which do not regulate supply but jointly control promotion in an industry. Cartels of the latter type sometimes occur in agriculture. In general, the paper qualifies the proposition, which Doyle has attributed to Kaldor, that the amounts of advertising and promotion of products are, as a rule, over supplied from a welfare point of view. There are some circumstances in which the opposite is so.
Price Competition and Advertising Signals: Signaling by Competing Senders
Journal of Economics & Management Strategy, 2001
Can price and advertising be used by vertically differentiated duopolists to signal qualities to consumers? We show that pure price separation is impossible if the vertical differentiation is small, while adding dissipative advertising ensures existence of separating equilibria. Two simple, but nonstandard, equilibrium refinements are introduced to deal with the multi-sender nature of the game, and they are shown to produce a unique separating and a unique pooling profile. Pooling results in a zero-profit Bertrand outcome. Separation gives strictly positive duopoly profits, and dissipative advertising is used by the high-quality firm when products are sufficiently close substitutes. Finally, compared to the complete information benchmark, the separating prices of both firms are distorted upwards when the degree of vertical differentiation is large, while they are distorted downwards when it is small.
Retail competition and cooperative advertising
2011
We consider a cooperative advertising channel consisting of a manufacturer selling its product through a retailer in competition with another independent retailer. The manufacturer subsidizes its retailer's advertising only when a certain threshold is positive. Moreover, the manufacturer's support for its retailer is higher under competition than in its absence.
Coop Advertising Programs Under Competitive Market Structures
2003
We examine whether cooperative advertising programs could constitute an effective tool to coordinate competitive marketing channels. While previous studies showed that such programs increase total channel profits in bilateral monopolies, no evidence of such a result has been provided for channels where competition is present at manufacturing and/or retailing levels. In this paper, we consider a distribution channel formed of two manufacturers and two retailers and propose a model that accounts for brand and store competitive interactions. The efficiency of the coop plan is investigated by comparing Nash equilibria of two non-cooperative games; one where manufacturers do not offer any promotional support to the retailers, and one where manufacturers do offer such a support. We show that when competition is introduced at a channel level, the efficiency of the coop program is no more guaranteed for members who operate at that level. Further, for symmetric channel members, we find that cooperative advertising programs are indeed implemented only under some conditions on brand and store substitution rates. Finally, for all competitive scenarios, we show that cooperative programs are optimal for consumers.
Market structure and cooperative advertising
Economics Letters, 1986
advertising is advertising whose demand-stimulating effects do not accrue exclusively to the firm that makes the advertising expenditure. This paper examines the effect of market structure on the equilibrium level of cooperative advertising.
Competition as a Moderator of the Effect of Advertising on Sales
Journal of Marketing Research, 1984
HUBERT GATIGNON* the author investigates the impact of competition on the sales response function. In particular, the influence of advertising on consumers' price sensitivity (elasticity) is explored. Two opposing schools of thought, information theory and market power theory, explain how advertising changes consumer price elasticity. These two theories provide conflicting predictions of the direction of change in price sensitivity. The author proposes and estimates a model specifying conditions under which one of the two theories would apply. The impact of advertising on other parameters of the sales response function also is examined. The crucial determinant of the sign of these coefficients is competitive reactivity. An operational definition of this construct is proposed, and the hypotheses are tested empirically by an analysis of airline industry data. Competition as a Moderator of the Effect of Advertising on Sales To the marketer, one of the purposes of advertising is to make consumers less price sensitive. Presumably, advertising shifts a brand's sales response function by reducing the elasticity of price, thereby increasing brand sales and justifying what may be enormous expenditures for advertising. This straightforward argument, though reasonable on its face, has been challenged as a misleading oversimplification by strategists (e.g., Porter 1979) and economists (e.g., Ornstein 1977), who suggest that advertising can actually shift the sales response function in the wrong direction by making consumers more price sensitive rather than less. If so, large advertisers are frustrating their own purpose. Further, a firm may enter a cycle of raising ad expenditures to combat declining sales-which, unknown to management, accelerates the decline! This counterproductive effect may occur because of an often overlooked moderating variable-competitive reaction. Advertising outlays by one firm can provoke competitors to retaliate by raising their own ad budgets. Such reaction increases the overall level of advertising in the industry, exposing consumers to more messages
Co‐Op Advertising in Dynamic Retail Oligopolies
2012
ABSTRACT We study a supply chain in which a consumer goods manufacturer sells its product through a retailer. The retailer undertakes promotional expenditures, such as advertising, to increase sales and to compete against other retailer (s). The manufacturer supports the retailer's promotional expenditure through a cooperative advertising program by reimbursing a portion (called the subsidy rate) of the retailer's promotional expenditure.