Goodwill and dynamic advertising strategies

Doğanoğlu, Toker and Klapper, Daniel (2006) Goodwill and dynamic advertising strategies. Quantitative marketing and economics, 4 (1). pp. 5-29. ISSN 1570-7156 (Print) 1573-711X (Online)

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In this paper, we empirically analyze weekly advertising policies of manufacturing firms in consumer goods markets. We assume firms engage in persuasive advertising, thus policies of firms affect the goodwill of a brand. We introduce a demand and a goodwill production function. A simple transformation of the demand function allows us to identify not only the demand parameters but also the parameters of the goodwill production function. We reconstruct the unobserved goodwill levels using these parameters and past advertising levels. We restrict our attention to Markov Perfect Equilibrium (MPE) strategies which are functions of payoff relevant state variables. Without imposing further restrictions on the dynamic competitive environment, we investigate the relationship between observed advertising strategies—which are assumed to be MPE—and payoff relevant state variables by means of several reduced form specifications. The most important determinant of advertising intensity turns out to be goodwill. We demonstrate that controlling for an advertising campaign significantly improves the explanatory power of the model.
Item Type: Article
Uncontrolled Keywords: advertising; goodwill; Markov perfect equilibrium; dynamic oligopoly
Subjects: H Social Sciences > HF Commerce
Divisions: Faculty of Arts and Social Sciences
Depositing User: Uğur Toker Doğanoğlu
Date Deposited: 19 Dec 2006 02:00
Last Modified: 17 Sep 2019 13:44

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