Enlarging the Pie vs. Increasing One's Slice: An Analysis of the Relationship Between Generic and Brand Advertising
Generic advertising promotes the general qualities of a product category and, therefore, benefits all firms—regardless of who has contributed to the campaign (e.g. “Got Milk?”). Such campaigns are organized either by independent contributions by industry members or through government legislation. In this paper, we study the relationship between brand and generic advertising in these two cases. In the independent-contribution case, a free-riding or cheap-riding generic advertising equilibrium is predicted. Interestingly, in the free-riding equilibrium, we show that dominant firms in industries should be indifferent to free riding by lesser firms. They should incur the entire industry advertising expense and be better for it. In the cheap-riding equilibrium, a group of equally dominant firms foot the bill. In the government-sponsored case, we establish that industry spending on generic advertising is greater. But, we find that there is an increase in total spending on brand advertising as well.
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