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Advertising Competition in a Dynamic Oligopoly with Multiple Brands

Michael G. Foster School of Business, University of Washington, Seattle, Washington 98195
erick{at}u.washington.edu

A model is developed that allows the derivation of feedback Nash equilibrium advertising strategies for oligopolistic competitors. The model is an extension of a modified Vidale-Wolfe model that incorporates multiple brands per competitor. The resulting expressions of feedback advertising strategies are combined with those for sales dynamics in an empirical model that is applied to the carbonated soft drink market, which involves three primary competitors and five primary brands. The research provides the following contributions:

• A modification of the Vidale-Wolfe model is extended to allow dynamic analysis of an oligopoly in which the competitors each offer multiple brands.
  
• The model extension permits the derivation of a feedback Nash equilibrium.
  
• The determination of a feedback Nash equilibrium enhances empirical analysis by allowing an expanded empirical model that includes the explicit modeling of endogenous advertising along with demand relationships.
  

Subject classifications: oligopoly; differential game; feedback Nash equilibrium; advertising competition; empirical application.
History: Received October 2007; revision received July 2008; accepted August 2008.