Comparative versus Informative Advertising in Oligopolistic Markets

The present paper investigates the firms’ incentives to invest in informative and/or comparative advertising, in an oligopolistic market with horizontal and vertical product differentiation. We show that, in equilibrium the firms’ optimal decision is to invest in a combination of informative and comparative advertising where, the expenditure levels on each type of advertising are being determined by the degree of substitution between products. Further, through the comparison with the benchmark case without advertising activities and the mere informative advertising case, we show that firms’ investment in both types of advertising always leads to higher output and lower profits. Finally, the impact of advertising on social welfare is also discussed.