Generic Advertising in Markets with Informative Brand Advertising
Yasushi Kudo and
Victor J. Tremblay Additional contact information Kosin Isariyawongse: Oregon State University
Yasushi Kudo: Oregon State University
Victor J. Tremblay: Oregon State University
This paper analyzes the interactions between generic advertising, brand advertising, and firm profits when brand advertising is purely informative. We develop duopoly models with vertical and horizontal differentiation when brand advertising lowers consumer search costs of identifying brand characteristics. The model demonstrates that firms can benefit from investing in brand advertising that lowers consumer search costs as well as from brand advertising that is purely persuasive. In addition, the results demonstrate that regardless of whether brand advertising is persuasive or informative, the outcome is more likely to be symmetric with horizontal differentiation than with vertical differentiation. The key distinction between this model and that of previous studies is that brand advertising across rivals is a strategic complement when persuasive and a strategic substitute when informative.