Generic and Brand Advertising Strategies in a Dynamic Duopoly

Frank M. Bass (), Anand Krishnamoorthy (), Ashutosh Prasad () and Suresh Sethi
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Frank M. Bass: School of Management, The University of Texas at Dallas, Richardson, Texas 75083-0688
Anand Krishnamoorthy: College of Business Administration, University of Central Florida, Orlando, Florida 32816-1400
Ashutosh Prasad: School of Management, The University of Texas at Dallas, Richardson, Texas 75083-0688

Marketing Science, 2005, vol. 24, issue 4, 556-568

Abstract: To increase the sales of their products through advertising, firms must integrate their brand-advertising strategy for capturing market share from competitors and their generic-advertising strategy for increasing primary demand for the category. This paper examines whether, when, and how much brand advertising versus generic advertising should be done. Using differential game theory, optimal advertising decisions are obtained for a dynamic duopoly with symmetric or asymmetric competitors. We show how advertising depends on the cost and effectiveness of each type of advertising for each firm, the allocation of market expansion benefits, and the profit margins determined endogenously from price competition. We find that generic advertising is proportionally more important in the short term and that there are free-riding effects leading to suboptimal industry expenditure on generic advertising that worsen as firms become more symmetric. Due to free-riding by the weaker firm, its instantaneous profit and market share can actually be higher. The effectiveness of generic advertising and the allocation of its benefits, however, have little effect on the long-run market shares, which are determined by brand-advertising effectiveness. Extensions of the model show that market potential saturation leads to a decline in generic advertising over time.

Keywords: advertising; generic advertising; differential games; dynamic duopoly; optimal control (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (54)

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