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Informative Advertising: Competition Or Cooperation?

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  • WITNESS SIMBANEGAVI

Abstract

In a duopoly version of the Grossman and Shapiro [1984] model of informative advertising, I examine firms' incentives to semicollude on advertising and the welfare implications thereof. I find that, relative to the noncooperative outcome, semicollusion on advertising is more profitable but is detrimental to welfare. I also find that when the advertising cost is ‘low,’ advertising semicollusion is more harmful to welfare than price semicollusion. These findings are important for competition policy since traditionally, cooperative advertising is not treated in the same light as price collusion.

Suggested Citation

  • Witness Simbanegavi, 2009. "Informative Advertising: Competition Or Cooperation?," Journal of Industrial Economics, Wiley Blackwell, vol. 57(1), pages 147-166, March.
    • Handle: RePEc:bla:jindec:v:57:y:2009:i:1:p:147-166
    DOI: 10.1111/j.1467-6451.2009.00367.x
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    References listed on IDEAS

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    1. Gene M. Grossman & Carl Shapiro, 1984. "Informative Advertising with Differentiated Products," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(1), pages 63-81.
    2. Goldberg Victor P., 2005. "Featuring the Three Tenors in La Triviata," Review of Law & Economics, De Gruyter, vol. 1(1), pages 55-64, April.
    3. B. Douglas Bernheim & Michael D. Whinston, 1985. "Common Marketing Agency as a Device for Facilitating Collusion," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 269-281, Summer.
    4. Fershtman, Chaim & Gandal, Neil, 1994. "Disadvantageous semicollusion," International Journal of Industrial Organization, Elsevier, vol. 12(2), pages 141-154, June.
    5. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    6. Mark J. Roberts & Larry Samuelson, 1988. "An Empirical Analysis of Dynamic, Nonprice Competition in an Oligopolistic Industry," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 200-220, Summer.
    7. Gasmi, F & Laffont, J J & Vuong, Q, 1992. "Econometric Analysis of Collusive Behavior in a Soft-Drink Market," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(2), pages 277-311, Summer.
    8. repec:bla:jindec:v:47:y:1999:i:2:p:221-30 is not listed on IDEAS
    9. Steen, Frode & Sorgard, Lars, 1999. "Semicollusion in the Norwegian cement market," European Economic Review, Elsevier, vol. 43(9), pages 1775-1796, October.
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    Cited by:

    1. Jianqiang Zhang & Weijun Zhong & Shue Mei, 2012. "Competitive effects of informative advertising in distribution channels," Marketing Letters, Springer, vol. 23(3), pages 561-584, September.
    2. Rim Lahmandi-Ayed & Didier Laussel, 2024. "Random Informative Advertising with Vertically Differentiated Products," Post-Print hal-04678637, HAL.
    3. Akio Kawasaki & Takao Ohkawa & Makoto Okamura, 2019. "Inter-group competition through joint marketing efforts and intra-group Cournot competition," Journal of Economics, Springer, vol. 128(3), pages 203-224, December.
    4. Qing Hu & Dan Li & Tomomichi Mizuno, 2024. "Endogenous choice of price or quantity contract with upstream advertising," Metroeconomica, Wiley Blackwell, vol. 75(1), pages 34-51, February.
    5. Aust, Gerhard & Buscher, Udo, 2014. "Cooperative advertising models in supply chain management: A review," European Journal of Operational Research, Elsevier, vol. 234(1), pages 1-14.
    6. Rim Lahmandi-Ayed & Didier Laussel, 2024. "Random Informative Advertising with Vertically Differentiated Products," Games, MDPI, vol. 15(2), pages 1-29, March.
    7. Pedro Gonzaga & António Brandão & Helder Vasconcelos, 2014. "Theory of Semi-Collusion in the Labor Market," FEP Working Papers 522, Universidade do Porto, Faculdade de Economia do Porto.
    8. Jesús Andrés Burbano-Gómez & Mónica María Sinisterra-Rodríguez, 2023. "Effects of informative advertising on the formation of market structures," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 50(2), pages 445-486, June.
    9. Qing Hu & Tomomichi Mizuno, 2021. "Endogenous timing and manufacturer advertising: A note," Metroeconomica, Wiley Blackwell, vol. 72(2), pages 309-320, May.

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