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A model of advertising with application to the German automobile industry

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This paper develops a dynamic duopolistic model of advertising and price competition. Advertising accumulates a stock of goodwill which enters directly into the demand functions and both the cooperative and predatory effects of advertising are considered. It is shown that firms invest more in advertising the higher the degree of cooperativeness of advertising and some comparative static results are provided. In the second, empirical part of the article, estimations of the demand equations are presented using data from the German automobile industry. The main conclusion drawn is that advertising plays an important role in this market and has a predatory nature.
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Document Type: Research Article

Affiliations: 1: Facultad de Ciencias Económicas Universidad del País Vasco Lehendakari Aguirre 83 E48015 Bilbao Spain 2: Departmento de Fundamentos del Análisis Económico

Publication date: 01 January 2004

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