Advertising Effect Of A Firm On The Sales Of Brand

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Clarke (1973) defined advertising competition as follows: “Brand A will be said to compete with Brand B through advertising if a change in the advertising of Brand A is associated with a change in the sales of Brand B” (p. 251). Since competition among firms is a frequent scenario in most markets, discovering how firms react when their counterparts attack with promotions and advertising has been an issue extensively studied. Furthermore, Little (1979) recognized competitive advertising as an element to consider when building dynamic market response models.

This section reviews studies that addressed the problem of determining the advertising effect of a firm on the sales of its competitors, based on the model used to describe the dynamics of the advertising-sales relationship.

By coalescing differential games and econometric analyses, Chintagunta and Vilcassim (1992) determined open-loop and closed-loop advertising strategies in a duopoly where the dynamics of the advertising-sales relationship followed the Lanchester model. The authors illustrated their approach with market share and advertising spending data for Coke and Pepsi between 1968 and 1981 when the Cola War took place.

After estimating the Lanchester model, the authors found that, in the case of Coke, closed-loop Nash equilibrium for paid-for advertising efforts were closer to actual advertising than open-loop Nash equilibrium due to the former took market share dynamics into account, whereas open-loop
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