Eventi del

25 2015 12:45 - 14:00
Via Roentgen, 1  4th floor room E4.SR03

Advertising and Price Competition in a Manufacturer-Retailer Channel

Chakravarthi Narasimhan (Washington University in St. Louis)

We investigate how manufacturers’ advertising competition, when advertising has a dynamic impact on the goodwill that affects current period demand, affects  price competition in a manufacturer-retailer channel. We find that advertising and retail price promotion are strategic complements in the laundry detergent category as manufacturer advertising increases the price elasticity of demand. Advertising competition intensifies price competition although it improves the profitability of manufacturers. The presence of retailers in the channel leads to increased advertising spending but also mitigates the extent of price competition. Compared to the case of when price is the only strategic variable, the presence of an intermediary leads to higher profitability  for manufacturers when they compete in both price and advertising. This implies that previous channel studies (e.g. McGuire and Staelin 1983) may have underestimated the benefits of manufacturers employing retailers to avoid direct competition. We also find that the benefits are asymmetric across manufacturers as brands with a higher goodwill level and advertising effectiveness seem to benefit more even when there is no cost advantage relative to its competitors.