Manufacturer defensive and offensive advertising in competing distribution channels

Abstract

This paper investigates how two competing manufacturers should invest in defensive and offensive advertising in a two‐segment market and whether they should each adopt a decentralized or an integrated channel if their goal is to maximize total channel profits. We find that manufacturers in decentralized channels can exclusively undertake either of the two types of advertising or combine the two at the equilibrium. In integrated channels, they can either combine the two or exclusively undertake defensive advertising. When multiple equilibria exist, strategies that combine both types of advertising should be preferred to exclusive defensive advertising strategies, which are better than exclusive offensive advertising strategies. Also, total channel profits are higher in decentralized channels than in integrated channels when the brands are moderately or highly substitutable. Conversely, total channel profits of integrated channels are higher than those of decentralized channels in areas where the brands are relatively differentiated and the offensive advertising retaliatory capacity of the rival is stronger. Theoretical and managerial implications of these findings are discussed.

Multichannel Auction Strategies in Online Advertising With a Profit Model

“…Proof of Situation 1: One can immediately verify that the valuesR 1 t ,R 2 t andR 3 t are defined such that (a) Eπ 1 > Eπ 2 , if and only if R t ≥R 1 t ; (b)Eπ ň >Eπ ő , if and only if R t ≥R 2 t ; and (c)Eπ 3 >Eπ 2 , if and only if R t ≥R 3 t . For part (i), if R t ≥R 1 t , it is obvious that Eπ 1 >Eπ 2 , which according to the conditionR 1 t > max[R 2 t ,R 3 t ], means that Eπ 1 >Eπ 3 and that Eπ 3 >Eπ 2 . Moreover, Eπ 1 >Eπ 3 >Eπ 2 .…”

“…For comparing the different channels' expected profit, without loss of generality, we define y(λ, λ c ) = Eπ 1 − Eπ 2 , y(λ, λ f ) = Eπ 1 − Eπ 3 , and y(λ c , λ f ) = Eπ 2 − Eπ 3 . In addition, some assumptions are given in the following:…”

“…The abscissa axis is the reserved price, R t , and the ordinate is the expected profit, Eπ . If a paradox is present, the involved thresholdsR 1 t ,R 2 t andR 3 t cannot satisfy the following equations: Eπ 1 = Eπ 2 , Eπ 1 = Eπ 3 , and Eπ 3 = Eπ 2 . It is obvious that when R t is high enough, channel x is superior to other channels.…”

“…Furthermore, in the left Figure (a), although we do not draw the lines after R t = 60, the trend of channel z exceeds that of channel x, which is consistent with R t <R 1 t ,R 2 t andR 3 t . As the middle Figure (b) explains, it is likely that proxy bidding through Ad Exchange is conducted by bidders, as proxy bidding is more advantageous than channel y, bidding with cost of information fees, which is described by R t >R 1 t ,R 2 t andR 3 t . As a whole, from a profit perspective, exogenous bidding captures market share.…”

“…With the development of the Internet, increasingly more deals are made through the Internet [1]. As an emerging product, online advertising [2]- [4] has also increasingly attracted attention from advertising demanders.…”