Negative Advertising and Product Design

62 Pages Posted: 16 Aug 2021

See all articles by Gorkem Bostanci

Gorkem Bostanci

University of Pennsylvania, Dept of Economics

Pinar Yildirim

University of Pennsylvania - The Wharton School

Kinshuk Jerath

Columbia University - Columbia Business School

Date Written: July 21, 2021

Abstract

Negative advertising provides information about the weaknesses of a competitor’s product. We study negative advertising with a focus on how it impacts product positioning for profit-maximizing firms. We build a model of informative advertising competition, where product positioning is endogenous and consumers have rational expectations. We show that despite the informational benefits of negative advertising, permitting it (as the Federal Trade Commission in the United States does) may lead to reduced product differentiation and lower consumer welfare, even in markets where firms do not utilize negative advertising in equilibrium. We then extend our model to political competition, where a candidate’s objective is to obtain a larger share of votes than the competitor. We show that political competition supports higher positional differentiation, along with more negative advertising than product competition, in line with observed high use of negative advertising in political races and their rarer use in product competition.

Keywords: comparative advertising, negative advertising, product positioning

JEL Classification: L00, M00

Suggested Citation

Bostanci, Gorkem and Yildirim, Pinar and Jerath, Kinshuk, Negative Advertising and Product Design (July 21, 2021). Available at SSRN: https://ssrn.com/abstract=3890940 or http://dx.doi.org/10.2139/ssrn.3890940

Gorkem Bostanci

University of Pennsylvania, Dept of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States

Pinar Yildirim (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Kinshuk Jerath

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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