Empirical Analysis of Closed-Loop Duopoly Advertising Strategies

Gary M. Erickson
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Gary M. Erickson: Department of Marketing and International Business DJ-10, University of Washington, Seattle, Washington 98195

Management Science, 1992, vol. 38, issue 12, 1732-1749

Abstract: Closed-loop (perfect) equilibria in a Lanchester duopoly differential game of advertising competition are used as the basis for empirical investigation. Two systems of simultaneous nonlinear equations are formed, one from a general Lanchester model and one from a constrained model. Two empirical applications are conducted. In one involving Coca-Cola and Pepsi-Cola, a formal statistical testing procedure is used to detect whether closed-loop equilibrium advertising strategies are used by the competitors rather than open-loop strategies. In the second application, involving Anheuser-Busch and Miller, the general model is estimated. Results indicate that closed-loop equilibria better explain dynamic advertising competition than do open-loop equilibria. Also, closed-loop equilibrium advertising strategies implied by model estimates show that competitive advertising levels may or may not be monotonic in market share.

Keywords: marketing; competitive strategy; advertising; games; noncooperative; differential (search for similar items in EconPapers)
Date: 1992
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Citations: View citations in EconPapers (49)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:38:y:1992:i:12:p:1732-1749

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