CHANGING MARKET CONDITIONS AND ADVERTISING STRATEGIES - THEORY AND EVIDENCE

Using a modified continuous Lanchester model of advertising competitio n and following a game theoretic approach, this paper investigates ana lytically the sensitivity of optimal advertising to changes in model p arameters in the cases of symmetric and semi-symmetric competition. Th e theoretical results show that non-dominant firms in both market stru ctures behave similarly whereas the dominant firm in the latter struct ure behaves considerably differently. We estimate a modified Lancheste r model using ready-to-eat cereal data. Based on the obtained estimate d parameters, we conduct an empirical analysis to assess the robustnes s of the theoretical estimated results. In the reported application, w e demonstrate that when the model parameters change, non-dominant comp etitors as well as the dominant rival behave in a manner consistent wi th the theoretical results related to the semi-symmetric competitive s tructure.