A Dynamic Model of Advertising and Product Differentiation

Claudio Piga

Review of Industrial Organization, 1998, vol. 13, issue 5, 509-522

Abstract: This paper analyses a differential game of duopolistic rivalry through time where firms can use advertising and price as competitive tools. Two cases are considered whereby: (1) advertising has the main effect of increasing market size and firms differ in production efficiency; (2) advertising has both predatory and cooperative effects in a symmetric market. The former shows that market shares and advertising shares are positively correlated and that market size increases with the difference in firms' relative efficiency. The latter highlights the differences in the feedback and open-loop strategies. It is shown that firms' advertising are strategic complements and that profits are higher in the feedback equilibrium because firms advertise more. The applicability of the model in markets where franchise contracts and dealership agreements operate is also discussed.

Date: 1998
References: Add references at CitEc
Citations: View citations in EconPapers (44)

Downloads: (external link)
http://journals.kluweronline.com/issn/0889-938X/contents (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:revind:v:13:y:1998:i:5:p:509-522

Ordering information: This journal article can be ordered from
http://www.springer. ... on/journal/11151/PS2

Access Statistics for this article

Review of Industrial Organization is currently edited by L.J. White

More articles in Review of Industrial Organization from Springer, The Industrial Organization Society Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().