Advertising and endogenous exit in a differentiated duopoly

Mantovani, Andrea and Mion, Giordano (2006) Advertising and endogenous exit in a differentiated duopoly. Recherches économiques de Louvain, 72 (1). pp. 19-48. ISSN 0070-4518

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Abstract

In this paper we consider a two-stage duopoly game where firms first decide whether to invest in advertising and then compete in prices. Advertising has two effects : a market enlargement for both firms and a predatory gain for the investing firm only. Both symmetric and asymmetric equilibria may arise. The two most interesting cases are a coordination game where both firms investing and non-investing are equilibria, and a chicken game where only one firm invests while the other is possibly driven (endogenously) out of the market. Our results suggest that product differentiation has an ambiguous impact on investment in advertising and that strong product substitutability may induce a coordination problem.

Item Type: Article
Schools and Departments: School of Business, Management and Economics > Economics
Subjects: H Social Sciences
Depositing User: Tahir Beydola
Date Deposited: 06 Dec 2015 12:28
Last Modified: 06 Dec 2015 12:28
URI: http://sro.sussex.ac.uk/id/eprint/58680
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