Advertising and endogenous exit in a differentiated duopoly

Andrea Mantovani and Giordano Mion

No 2003023, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: In this paper we consider a two-stage duopoly game where firms first decide whether to invest in advertising and then compete in prices. Advertising has two effects: a market enlargement for both firms and a predatory gain for the investing firm only. Both symmetric and asymmetric equilibria may arise. The two most interesting cases are a coordination game where both firms investing and non-investing are equilibria, and a chicken game where only one firm invests while the other is possibly driven (endogenously) out of the market. Our results suggest that product differentiation has an ambiguous impact on investment in advertising and that strong product substitutability may induce a coordination problem.

Keywords: advertising; product differentiation; endogenous exit; asymmetric equilibria; coordination games (search for similar items in EconPapers)
JEL-codes: C72 L11 L13 M37 (search for similar items in EconPapers)
Date: 2003-03
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Related works:
Journal Article: Advertising and endogenous exit in a differentiated duopoly (2006)
Working Paper: Advertising and endogenous exit in a differentiated duopoly (2006)
Working Paper: Advertising and endogenous exit in a differentiated duopoly (2006)
Working Paper: Advertising and endogenous exit in a differentiated duopoly (2006)
Working Paper: Advertising and Endogenous Exit in a Differentiated Duopoly (2002)
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