This paper investigates how two competing manufacturers should invest in
defensive and offensive advertising in a two-segment market and whether they
should each adopt a decentralized or an integrated channel if \ their goal
is to maximize total channel profits. We find \ that, manufacturers in
decentralized channels can exclusively undertake either of the two types of
advertising or combine the two at the equilibrium. In integrated channels,
they can either combine the two or exclusively undertake defensive
advertising. When multiple equilibria exist, strategies that combine both
types of advertising should be preferred to exclusive defensive advertising
strategies, which are better than exclusive offensive advertising
strategies. Also, total channel profits are higher in decentralized channels
than in integrated channels when the brands are moderately or highly
substitutable. Conversely, total channel profits of integrated channels are
higher than those of decentralized channels in areas where the brands are
relatively differentiated and the offensive advertising retaliatory capacity
of the rival is stronger. Theoretical and managerial implications of these
findings are discussed.
