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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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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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container_title	International journal of the economics of business
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creator	Tremblay, Victor J. Tremblay, Carol Horton Isariyawongse, Kosin
description	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.
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source	EconLit s plnými texty; EBSCOhost Business Source Ultimate; International Bibliography of the Social Sciences (IBSS); Taylor and Francis Social Sciences and Humanities Collection
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
title	Cournot and Bertrand Competition when Advertising Rotates Demand: The Case of Honda and Scion
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