Generic and Brand Advertising Strategies in a Dynamic Duopoly

Marketing Science, Vol. 24 , No. 4, pp. 556-568, Fall 2005

37 Pages Posted: 30 Jan 2008 Last revised: 23 Oct 2009

See all articles by Frank M. Bass (deceased)

Frank M. Bass (deceased)

affiliation not provided to SSRN (deceased)

Anand Krishnamoorthy

University of Central Florida

Ashutosh Prasad

University of California, Riverside (UCR)

Suresh Sethi

University of Texas at Dallas - Naveen Jindal School of Management

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, Brand Advertising, duopoly, dynamic model, optimal control, differential games, Nash equilibrium. Feedback Nash, marketing mix

JEL Classification: C61, M31, M37, M31,M00, C72

Suggested Citation

Bass (deceased), Frank M. and Krishnamoorthy, Anand and Prasad, Ashutosh and Sethi, Suresh, Generic and Brand Advertising Strategies in a Dynamic Duopoly. Marketing Science, Vol. 24 , No. 4, pp. 556-568, Fall 2005 , Available at SSRN: https://ssrn.com/abstract=1087615

Frank M. Bass (deceased)

affiliation not provided to SSRN (deceased)

Anand Krishnamoorthy

University of Central Florida ( email )

College of Business Administration
4000 Central Florida Blvd.
Orlando, FL 32816-1400
United States

Ashutosh Prasad

University of California, Riverside (UCR)

900 University Avenue
Riverside, CA CA 92521
United States

Suresh Sethi (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 W. Campbell Road, SM30
Richardson, TX 75080-3021
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
219
Abstract Views
3,970
Rank
287,467
PlumX Metrics