Competitive Advertising And Pricing in Duopolies the Implications of Relevant

Cover Competitive Advertising And Pricing in Duopolies the Implications of Relevant
Competitive Advertising And Pricing in Duopolies the Implications of Relevant
John R Hauser
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If condition (PI) holds, then an increase in brand 2's » advertising spending, k decreases brand ]'s equilibrium price, p .
From Resuit 7 we get that the effect of advertising on equi 1 ibriuir. Price depends on the shape of the demand curve--in particular, the interaction of p and p . For example, for the constant elasticity or the exponential demand curves, an increase in firm I's advertising always increases firm I's equilibrium price while for the linear demand curve it 1 3 decrea ses the e
...quilibrium price.
By constant elasticity, we mean s = p f(p ), by exponential, -rp^ s = e f{p ]. Where f' > 0. By linear we mean s = a - 3 p - fp'^S' 26 Result 7 cautions academic researchers and decision support system users that a seemingly innocent choice of functional form is inportant. Result 7 suggests that great care should be exercised when choosing the shape of the demand curve. Long before specific paraaeters are estinated.
Result 8 is less sensitive to the shape of the demand curve; an increase in competitive advertising always lowers firm I's equilibrium price.


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