The Game of Comparative Advertising: Making Strategic Choices

Kalro, Arti D.; Thomas, Mathew A.; Marathe, Rahul R.
October 2009
International Journal of Business Insights & Transformation;Oct2009-Mar2010, Vol. 3 Issue 1, p10
Academic Journal
Comparative advertising attempts to pull down the rival brand by reducing its value relative to the advertising brand. Concurrently, the response by the rival brand has its own costs and benefits for both the competitors. Therefore, it becomes critical for advertisers to analyze the competitors' usage and intensity of comparative advertising. In this paper, we attempt to identify circumstances under which firms of equal market standing should engage in comparative advertising. Using game theory, we explore three situations where firms engage in differing intensity of comparisons or refrain from comparative advertising. We find that, when firms know the action of the rival, it is optimal to copy rival's action. When the firms have to take decisions simultaneously and when a firm is certain that the rival is interested in maximizing its benefits, the firm should also maximize its benefits. However, if the firm believes that the rival may not be rational (not interested in its benefits) then the firm should take a risk minimizing position. In the final model, wherein the firms simultaneously decide between indirect, direct and noncomparative advertising, the equilibrium depends on the expected payoffs. This paper offers insights for practitioners by attempting to model realistic comparative advertising scenarios and lays foundation for future research.


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