Advertising spillovers and market structure

Abstract

In this paper we characterize the equilibrium of a duopoly market which exhibits advertising spillovers. Interestingly, we prove that the relevant distinction is not between pure positive and pure negative advertising spillovers but between strong positive spillovers and weakly positive or negative spillovers. Moreover, we prove that, depending on the extent of advertising spillovers and the agency advertising cost, we may obtain at equilibrium either two active advertisers or only one advertiser that may even push its rival out of the product market. Thus advertising and the spillovers induced from it may be a source of a monopoly situation, hence an asymmetric outcome may result from an initially symmetric situation.