Analytical Models and Strategy Concepts

Abstract

Eliashberg and Chatterjee (1985) indicate that the analytical study of competition requires certain basic assumptions to be made regarding the number of competitors studied, the nature of competitive interaction, and the information base of the competitors involved. Generally, studies have assumed a game theory framework, in which each of the various competitors is a decision maker, although some (e.g. Horsky 1977) study only the decisions of a single competitor. A game theory framework offers a potentially rich setting for studying the interactive nature of competitive advertising. It usually is assumed in existing research that the competitors make their advertising decisions simultaneously and with complete information. (Bensoussan et al. 1978, on the other hand, view the situation as a sequential decision-making process, and adopt the perspective of the market leader that needs to anticipate the reactions of its competitors to its decisions.) That is, each competitor has full knowledge of the nature of the competitive interaction and the motivations and profit structures of the other competitors, so that each competitor can infer the strategies of its rivals. Also, it is generally assumed that the competitors cannot collude (although see Gasmi et al. 1992 and Vilcassim et al. 1999 for a different perspective). Assuming collusion is not possible, the noncooperative branch of game theory is appealed to, and Nash equilibria are sought to define the advertising strategies of the competitors.