PRODUCT RIVALRY WITH MULTIPLE STRATEGIC WEAPONS - AN ANALYSIS OF PRICE AND ADVERTISING COMPETITION

A dynamic model of product rivalry is developed for a market in which firms choose price and advertising intensity. The model, a state-space game, is implemented using data that consist of weekly price, sales, and promotional activity for four brands of saltine crackers sold by f our chains of grocery stores in a small town. A number of questions ca n be asked of this data. First, is advertising predatory (merely chang ing market shares) or cooperative (shifting out market demand)? Second , are price and advertising own and cross-strategic complements or sub stitutes? And finally, do investments in stocks of goodwill and in pri ce reductions make firms tough and aggressive or soft and accommodatin g?