Comparative versus Informative Advertising in Oligopolistic Markets

Posted by D. Daniel Sokol

Maria Alipranti (University of Crete), Evangelos Mitrokostas (Department of Economics, University of Crete), and Emmanuel Petrakis (Department of Economics, University of Crete, Greece) analyze Comparative versus Informative Advertising in Oligopolistic Markets.

ABSTRACT: This paper investigates the firms’ incentives to invest in informative and/or comparative advertising, in an horizontally differentiated oligopolistic market. We show that in equilibrium, the firms’ optimal decision is to invest in a combination of informative and comparative advertising. The expenditure levels on each type of advertising are determined by the degree of substitution between the products. Further, through the comparison with the benchmark case without advertising activities and the mere informative advertising case, we show that firms’ investment in both types of advertising always leads to higher output and lower profits. Finally, the impact of advertising on social welfare is also discussed.