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A model of advertising with application to the German automobile industry

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  • Petr Mariel
  • Joel Sandonis

Abstract

This paper develops a dynamic duopolistic model of advertising and price competition. Advertising accumulates a stock of goodwill which enters directly into the demand functions and both the cooperative and predatory effects of advertising are considered. It is shown that firms invest more in advertising the higher the degree of cooperativeness of advertising and some comparative static results are provided. In the second, empirical part of the article, estimations of the demand equations are presented using data from the German automobile industry. The main conclusion drawn is that advertising plays an important role in this market and has a predatory nature.

Suggested Citation

  • Petr Mariel & Joel Sandonis, 2004. "A model of advertising with application to the German automobile industry," Applied Economics, Taylor & Francis Journals, vol. 36(1), pages 83-92.
    • Handle: RePEc:taf:applec:v:36:y:2004:i:1:p:83-92
    DOI: 10.1080/0003684042000177215
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    References listed on IDEAS

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    1. Jeremy I. Bulow & John Geanakoplos & Paul D. Klemperer, 1983. "Multimarket Oligopoly," Cowles Foundation Discussion Papers 674, Cowles Foundation for Research in Economics, Yale University.
    2. 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.
    3. Robert N. Horn, 1988. "Analysis," Challenge, Taylor & Francis Journals, vol. 31(4), pages 56-58, July.
    4. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
    5. M. Espinosa & Petr Mariel, 2001. "A model of optimal advertising expenditures in a dynamic duopoly," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 29(2), pages 135-161, June.
    6. Benchekroun, Hassan & van Long, Ngo, 1998. "Efficiency inducing taxation for polluting oligopolists," Journal of Public Economics, Elsevier, vol. 70(2), pages 325-342, November.
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    Cited by:

    1. Beltran-Royo, C. & Zhang, H. & Blanco, L.A. & Almagro, J., 2013. "Multistage multiproduct advertising budgeting," European Journal of Operational Research, Elsevier, vol. 225(1), pages 179-188.
    2. Craig Depken & Arthur Snow, 2008. "The strategic nature of advertising in segmented markets," Applied Economics, Taylor & Francis Journals, vol. 40(23), pages 2987-2994.
    3. M. Espinosa & Petr Mariel, 2001. "A model of optimal advertising expenditures in a dynamic duopoly," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 29(2), pages 135-161, June.
    4. 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.

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