A Competitive Advertising Model: Some Theoretical and Empirical Results

Using a modified Lanchester model, this article demonstrates that the policy of constant advertising spending is superior to a cyclic counterpart, provided that the advertising response functions of competing firms are concave. The competitive model is estimated using filter and non-filter cigarette data. The empirical results suggest the presence of over-advertising and that the relative effectiveness and elasticity of filter cigarette advertising are both higher than those of non-filter cigarette advertising.