Cournot and Bertrand Competition when Advertising Rotates Demand: The Case of Honda and Scion

We develop a model to explain why firm behavior differs in the market for small cars. Firms such as Honda compete in output (Cournot) and produce marketing campaigns with universal appeal, while firms such as Scion compete in price (Bertrand) and produce targeted marketing campaigns. We show that th...

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Bibliographic Details
Published in:International journal of the economics of business 2013-02, Vol.20 (1), p.125-141
Main Authors: Tremblay, Victor J., Tremblay, Carol Horton, Isariyawongse, Kosin
Format: Article
Language:English
Subjects:
Advertising
Advertising campaigns
Automobile Industry
Business economics
Competition
Cournot-Bertrand Model
Demand curves
Demand Rotation
Economic models
Electoral campaign financing
Marketing
Mass-Market Advertising
Niche-Market Advertising
Organizational behavior
Profitability
Studies
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Summary:We develop a model to explain why firm behavior differs in the market for small cars. Firms such as Honda compete in output (Cournot) and produce marketing campaigns with universal appeal, while firms such as Scion compete in price (Bertrand) and produce targeted marketing campaigns. We show that this mixture of Cournot and Bertrand behavior can occur when advertising rotates demand. When behaving as a Cournot-type firm such as Honda, it is more profitable to pursue a mass-market advertising campaign that rotates demand counterclockwise when it faces relatively low unit costs and a flat demand function. When behaving as a Bertrand-type firm such as Scion, it pays to pursue a niche-market advertising campaign that rotates demand clockwise when it faces relatively high unit costs and a steep demand.
ISSN:1357-1516
1466-1829
DOI:10.1080/13571516.2012.750045