| Suman Basuroy, Rutgers University Dung Nguyen, University of Pittsburgh |
| Multi-Brand Advertising Competition: Theory and Econometric Results |
| Session: C-4-10 Saturday 12 August 2000 by Nguyen, Dung |
| Firms typically sell more than one brand of a particular product. This characterization gives rise to not only competition among firms, but also potential intra-firm effects of sister brands (e.g., between Coke and Diet Coke) as well as inter-firm effects of specific rival brands (e.g., between Coke and Pepsi). However, unlike the literature on single-brand, both theoretical and empirical studies on multi-brand competitive reactions have been largely ignored. Our paper explores theoretical and empirical implications of multi-brand multi-company competition within a multinomial logit (MNL) market share framework involving advertising as the dominant marketing activity. In the context of a multi-brand multi-company competition, our theoretical analysis enables us to decompose three separate and specific factors that may impact a brand s optimal marketing spending. Our results suggest that a firm's optimal marketing effort devoted to one of its brands would be affected by the effectiveness of the brand's own advertising campaign (own effect), the impact of advertising of its sister brand (intra-firm effect), as well as that of a competing firm's rival brand (inter-firm effect) on the brand's sales. We also analyze the impact of increasing competition on marketing expenditures of the existing brands, incorporating potential intra-firm and inter-firm interactions. Finally, we test the theoretical model using time-series data on major competing soft drinks brands. The econometric results offer strong support for the presence of positive sister brand effects and negative rival brand effects on the basis of the data used. |