Premium
Advertising Subsidy and International Oligopolistic Competition
Author(s) -
Ma Jie,
Ulph Alistair M.
Publication year - 2012
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.2012.01055.x
Subject(s) - oligopoly , cournot competition , competitor analysis , product differentiation , competition (biology) , subsidy , economics , product (mathematics) , strategic complements , product market , microeconomics , comparative advertising , market structure , industrial organization , business , advertising , market economy , incentive , ecology , geometry , mathematics , management , biology
This paper examines the strategic role of advertising subsidies in a third‐country trade model in which two firms located in different countries export their products to a third country. First a basic model of advertising in oligopolistic industries is developed in which firms decide how much to invest in either predatory or cooperative advertising and then engage in product market competition either as Cournot competitors or as Bertrand competitors. It is shown that firms invest in only one form of advertising; which form they invest in depends on the relative effectiveness of the two types of advertising, the degree of product differentiation, and the form of product market competition. The paper then studies strategic industrial policy and shows that an advertising subsidy is the optimal strategic policy irrespective of the form of product market competition and the form of advertising in which firms invest.