Original scientific paper
https://doi.org/10.1080/1331677X.2020.1844587
Advertising investment under switching costs
Ting Cui
Chan Wang
Pu-yan Nie
Abstract
Switching costs are exceedingly important in service industries
including platform firms and IT firms, and, have a strong effect on
firms’ advertising investments and market structure. This study
examines the effects of switching costs on advertising using a
two-stage discrete-time dynamic duopoly model. Firstly, we argue
that switching costs reduce firms’ advertising investments.
Secondly, both brand stealing effects and brand expansion effects
of advertising promote firms’ competition regarding pricing and
advertising investments. Finally, firms with high prices invest
more in advertising thank others. Because of switching costs,
firms compete in terms of both price and advertising investment.
This article captures the relationship between switching costs and
advertising investments in detail. The managerial policy is that
firms to determine advertising investment should consider switching costs.
Keywords
Switching costs; advertisement; duopoly; discrete-time dynamic game
Hrčak ID:
301254
URI
Publication date:
31.12.2021.
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