Asymmetric Horizontal Differentiation under Advertising in a Cournot Duopoly

Malcolm Brady
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Malcolm Brady: Business School, Dublin City University, D09 Y5N0 Dublin, Ireland

Games, 2022, vol. 13, issue 3, 1-14

Abstract: Horizontal differentiation is generally derived from the aggregate utility function and is assumed to be symmetric. However, empirical work suggests that asymmetric horizontal differentiation can exist in practice. This paper examines the topic of asymmetric horizontal differentiation by allowing a firm’s costly advertising to have a different impact on its own demand function than it does on that of its rival. This leads to the interesting analytical result that advertising that increases the cross-price effect of its rival can lead to an increase in firm profits. This introduces the possibility of a ‘couple’ effect where firm advertising can tilt its own and its rival’s demand functions in different directions. Several competitive advertising ‘couple’ scenarios are explored using numerical simulation.

Keywords: differentiation; horizontal; asymmetry; advertising; duopoly; Cournot; simulation (search for similar items in EconPapers)
JEL-codes: C C7 C70 C71 C72 C73 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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