Advertising in a Distribution Channel

Shaffer, Greg; Zettelmeyer, Florian
September 2004
Marketing Science;Fall2004, Vol. 23 Issue 4, p619
Academic Journal
Conventional wisdom suggests that one of the goals of manufacturer advertising is to reduce the cross-price elasticity between products (make one's own and rivals' products appear to be less substitutable in the eyes of consumers). Conventional wisdom also suggests that, all else being equal, retailers will be able to obtain better terms of trade from manufacturers the more substitutable are the manufacturers' products. It follows that retailers should be opposed to advertising that has the effect of reducing cross-price elasticities and thus that manufacturer advertising can be a source of channel conflict. We show that these conventional wisdoms need not hold when only some consumers are exposed to the advertising messages. Using a Hotelling model of demand, we show that (1) manufacturers can be worse off from advertising that reduces the cross-price elasticities between their products, (2) channel conflict need not arise, even when the sole purpose of advertising is to affect cross-price elasticities, and (3) depending on its bargaining power, a retailer can be better off when the manufacturers' products are perceived to be less substitutable.


Related Articles

  • ¿Qué pasará con las categorías medias de productos?  // MK - Marketing más Ventas;Mar2011, Vol. 25 Issue 266, p7 

    No abstract available.

  • METHODS OF ESTIMATING DEMAND. Hawkins, Edward R. // Journal of Marketing;Apr1957, Vol. 21 Issue 4, p428 

    The article discusses the relationship between pricing policies and demand curves. This article notes that only a few companies have studied this relationship and seeks to report their findings, focusing this discussion on price elasticity (the impact that a drop in price has on demand) at one...

  • Product Selection, Fixed Costs, and Monopolistic Competition. Spence, Michael // Review of Economic Studies;Jun76, Vol. 43 Issue 2, p217 

    The article investigates the effects of fixed costs and monopolistic competition on the selection of products and product characteristics in a set of interacting markets. Its purpose is the implication of this type of market failure in the setting of multiple firms and interacting products. The...

  • Ads without good marcom are missing something. Lamons, Bob // Marketing News;04/12/99, Vol. 33 Issue 8, p7 

    This article presents information on advertising with no marketing communication strategies. It presents information on four P's of marketing. The first P stands for products. Certainly the right product offering is crucial, but most companies compete in mature markets where products have been...

  • The Effects of Entry in Bilateral Oligopoly. Dickson, Alex // Games (20734336);Sep2013, Vol. 4 Issue 3, p283 

    The purpose of this paper is to study the effects of entry into the market for a single commodity in which both sellers and buyers are permitted to interact strategically. With the inclusion of an additional seller, the market is quasi-competitive: the price falls and volume of trade increases,...

  • Competition as a Moderator of the Effect of Advertising on Sales. Gatignon, Hubert // Journal of Marketing Research (JMR);Nov84, Vol. 21 Issue 4, p387 

    The author investigates the impact of competition on the sales response function. In particular, the influence of advertising on consumers' price sensitivity (elasticity) is explored. Two opposing schools of thought, information theory and market power theory, explain how advertising changes...

  • Price Elasticity Dynamics Over the Adoption Life Cycle. Parker, Philip M. // Journal of Marketing Research (JMR);Aug1992, Vol. 29 Issue 3, p358 

    Little empirical research has been conducted to test the dynamic behavior of elasticities over the product life cycle. Competing specifications of price elasticity dynamics are examined to test the prevailing hypothesis that elasticities increase over the adoption life cycle or diffusion...

  • Preferences and income effects in monopolistic competition models. Tarasov, Alexander // Social Choice & Welfare;Mar2014, Vol. 42 Issue 3, p647 

    This paper develops a novel approach to modeling preferences in monopolistic competition models with a continuum of goods. In contrast to the commonly used constant elasticity of substitution preferences, which do not capture the effects of consumer income and the intensity of competition on...

  • PRODUCT POSITIONING UNDER PRICE COMPETITION. Choi, S. Chan; Desarbo, Wayne S.; Harker, Patrick T. // Management Science;Feb1990, Vol. 36 Issue 2, p175 

    This paper presents a consumer-based methodology for new product pricing and positioning in the face of price competition. The price competition is modelled as a Nash equilibrium for which two complementary approaches are employed: an analytical approach of duopoly provides qualitative insights...


Read the Article


Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics