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Does Manufacturer Advertising Crowd‐in or Crowd‐out Retailer Advertising? An Application of an Endogenous Prize Contest with Asymmetric Players
Author(s) -
Ridlon Robert
Publication year - 2016
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/soej.12160
Subject(s) - contest , advertising , competition (biology) , crowding , business , informative advertising , crowding out , microeconomics , economics , online advertising , native advertising , computer science , monetary economics , the internet , ecology , neuroscience , world wide web , political science , law , biology
When a manufacturer advertises, what is the impact on retailer advertising? I analyze a contest model of advertising where total advertising by the manufacturer and by retailers determines market size, and the relative level of advertising by each retailer determines market share. If retailers are symmetric I show that there is a crowding‐in effect so increased manufacturer advertising increases retail advertising. But if one retailer is stronger, then marginal increases in manufacturer advertising have a crowding‐out effect on retailer advertising, while sufficiently large increases have a crowding‐in effect by “jump‐starting” competition between retailers for the larger market. Furthermore, asymmetric abilities in such contests can lead the weaker player to effectively drop out of the contest, thereby undermining the ability of increased prizes to increase effort by intensifying competition.