A Model of Advertising Competition

Abstract

Using a dynamic model of advertising rivalry between competitors in a duopoly, the author obtains analytical results for the case of pure market share rivalry in a mature market. A more general model, allowing for market expansion as well as market share rivalry, is analyzed numerically. An empirical illustration indicates that the advertising behavior of the two leading national brewers, Anheuser-Busch and Miller, is consistent with theoretical conclusions that competitors dynamically increase advertising expenditures to take advantage of a growing market for both.

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