Generic and Brand Advertising Strategies Under Inter-Industry Competition

Abstract

Industries invest in over billion dollars annually to drive up the primary demand and to fence off competing new industries’ threat to their customer bases. Companies in addition to contributing to industry generic campaign also heavily rely on brand advertising in order to capture a greater market share. Using a game-theoretic approach, we study generic and brand advertising competition under such an inter-industry competitive framework. We built an analytical model to study two competing industries each simultaneously making generic advertising decisions followed by firms within each industry simultaneously conducting brand advertising. We found that the mere presence of a rival industry can act as an impetus for an industry to invest in generic advertising. Model analyses and numerical studies suggest that there is a clear interactive nature between the two types of advertising decisions under inter-industry competitive framework. The generic advertising spending of an industry increases as the firms within that industry are more asymmetric. While a firm’s brand advertising spending increases as the generic advertising of its associated industry becomes more effective and that of the rival industry becomes less effective. Extensions of the main model suggest that there is a first-mover advantage in generic advertising under inter-industry competition.