بررسی فروش و رقابت تبلیغاتی در بازار وسیله نقلیه چند منظوره انگلستان (2002-1995)

To what extent do managers account for rivals’ advertising responses? We employ static and dynamic panel techniques to derive estimates that are used to test whether the Dorfman-Steiner optimality condition held in the UK multipurpose vehicle (MPV) market between 1995 and 2002. We show that omitting the response of own advertising to rivals’ advertising leads to substantially lower optimal levels of advertising expenditure compatible with non-retaliation strategies. When recognition of interdependence by the members of the oligopoly is taken into account, the Dorfman-Steiner condition holds. To complete the analysis of the advertising-sales relationship we also examine advertising determinants and find that rival advertising is also a significant determinant of own firm advertising behaviour.

Understanding the impact of own and rival advertising on product sales is a crucial issue facing managers. In the vast majority of markets where managers sell their wares they face rivalry from competitors. In such environments, in deciding the financial scope of their advertising campaigns managers need to be concerned with how rival managers will respond. In particular, if managers are aware that embarking on costly, high-profile, advertising campaigns will induce their rivals to raise the advertising stakes, poach sales, and thus undermine their promotional efforts, they will think twice about doing so. The plausible outcome of rival retaliation is, therefore, that it will induce optimising managers to advertise at lower levels than would be the case if they monopolised the market. The purpose of this paper is to pin down whether managers take optimal pricing-advertising strategic decisions when faced with rival reactions to their own advertising behaviour. Employing dynamic estimation methods we investigate the degree of monopoly in the industry by determining the unit profits (mark-up of price over marginal cost) as well as the optimising behaviour of advertising and prices. We then explicitly test whether the familiar Dorfman and Steiner (1954) optimality condition applies where members of an oligopoly recognise the interdependence of their marketing campaigns.1

We ask the question to what extent do managers account for rivals’ advertising responses? In the context of the rapidly expanding UK MPV market of 1995–2002, the answer we find is that they do pretty well: managers exhibiting near optimal responses (à la Dorfman-Steiner) when the interdependence of their marketing campaigns is recognised. Our findings are based on a two-step methodology. In the first step, the quality-adjusted price relation using hedonic analysis accounts for within-model quality differences through the employment of a rich set of version-level data. In the second step, we exploit the panel nature of the data to estimate static and dynamic sales and advertising equations. The estimates of these models are then used to access the advertising-pricing strategy of firms, allowing us to conclude that when the recognition of interdependence by the members of the oligopoly is taken into account, the Dorfman-Steiner condition holds. We also examine the determinants of firms’ advertising strategies in relation to sales and rival advertising. It is found that: (1) rivals’ advertising is predatory: higher rival advertising depresses own product sales as consumers switch to the rival product; (2) the behaviour of advertising expenditure is consistent with the rule of thumb behaviour: advertising increases more than proportionate with an increase in sales; (3) advertising is a strategic substitute—rival firms advertising campaigns reduce manager's willingness to advertise. Our research shows that advertising rivalry is a substantive factor determining managerial decision making. In doing so we fill a gap in what is an important but understudied area of research where future scholarship across differing industries is clearly warranted. While our work does provide concrete evidence of the significance of advertising rivalry, we have not detailed the channels through which those decisions are formed. For example, it not clear whether factors influencing managers’ knowledge of demand conditions, for example via marketing research, or input from the production side of the firm by operations managers and designers on cost factors are the crucial factors determining managers decision. Analysing such issues would require the development of structural models that are tailored to understanding the demand and cost structures within and between firms. The use of such methods, which is beyond the scope of this paper, is unnecessary to illustrate the empirical importance of advertising rivalry as we do. However, our findings do suggest that taking a structural approach is warranted and forms the basis of our future research.