An Empirical Comparison of Oligopolistic Advertising Strategies

Abstract

Two recent approaches have been proposed for developing advertising strategies in dynamic oligopolies, in the face of mathematical difficulties involved in developing closed-loop strategies in differential games. The proposed approaches, along with two baseline approaches, are compared in the context of a Lanchester oligopoly model and the empirical setting of the U. S. ready-to-eat cereal market. Three conclusions arise from the empirical comparison: (1) dynamic advertising strategies that are developed from a differential game context more closely match the general level of actual advertising expenditures than do strategies based on single-period decisions, (2) strategies based on dynamic conjectural variations provide the best overall fit with competitors’ actual advertising, (3) the strategies considered do not fully capture the dynamic advertising behavior of oligopolistic competitors.