Does Manufacturer Advertising Crowd-In or Crowd-Out Retailer Advertising? An Application of an Endogenous Prize Contest with Asymmetric Players

28 Pages Posted: 6 Oct 2010 Last revised: 13 May 2014

See all articles by Robert W. Ridlon

Robert W. Ridlon

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy

Date Written: February 12, 2014

Abstract

When a manufacturer advertises, what is the impact on retailer advertising? I analyze a contest model of advertising where total advertising by the manufacturer and by retailers determines market size, and the relative level of advertising by each retailer determines market share. If retailers are symmetric I show that there is a crowding-in effect so increased manufacturer advertising increases retail advertising. But if one retailer is stronger, then marginal increases in manufacturer advertising have a crowding-out effect on retailer advertising, while sufficiently large increases have a crowding-in effect by "jump-starting" competition between retailers for the larger market. Furthermore, asymmetric abilities in such contests can lead the weaker player to effectively drop out of the contest, thereby undermining the ability of increased prizes to increase effort by intensifying competition. More generally the model can be applied to other contests such as patent races or promotion tournaments where not just the probability of winning but also the value of winning depends on contest effort levels.

Keywords: asymmetric contests, game theory, endogenous prize

JEL Classification: C72, D42

Suggested Citation

Ridlon, Robert W., Does Manufacturer Advertising Crowd-In or Crowd-Out Retailer Advertising? An Application of an Endogenous Prize Contest with Asymmetric Players (February 12, 2014). Available at SSRN: https://ssrn.com/abstract=1688216 or http://dx.doi.org/10.2139/ssrn.1688216

Robert W. Ridlon (Contact Author)

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Bloomington, IN 47405
United States

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