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Advertising and endogenous exit in a differentiated duopoly

journal contribution
posted on 2023-06-08, 23:40 authored by Andrea Mantovani, Giordano Mion
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.

History

Publication status

  • Published

Journal

Recherches économiques de Louvain

ISSN

0070-4518

Publisher

De Boeck Supérieur

Issue

1

Volume

72

Page range

19-48

Department affiliated with

  • Economics Publications

Full text available

  • No

Peer reviewed?

  • Yes

Legacy Posted Date

2015-12-06

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