Generic and Brand Advertising in Markets with Product Differentiation

Abstract

In this paper, we analyze how generic advertising affects brand advertising and firm profits in differentiated oligopoly markets. We show that in the Crespi (2007) model only the high quality firm will use brand advertising when differentiation is vertical. We also demonstrate that when differentiation is horizontal, the equilibrium is likely to be more symmetric in terms of firm profits, spending on brand advertising, and firm response to generic advertising. Finally, we point out that generic advertising will increase expenditures on brand advertising when firms play a supermodular game. The results confirm that there are many reasons why generic advertising may increase firm spending on brand advertising.