Author(s): Marzia Freo, Giorgio Tassinari
Abstract: This study examines the nature of competition between the two leading brands of a national small size market by estimating short- and long-term competitive reactions via a Structural VAR (SVAR) model. The primary findings indicate how the two competitors react, which marketing instruments are used, and when competitive reactions affect cross- and own-sales. The empirical results suggest that competitive reactions are either simple or complex, whether through advertising or through promotions, but the reactions exhibit dynamic patterns that are quite symmetric across brands. The results further suggest that the follower weakly reacts to a leader’s assault and that the nature of competition in this market deviates from symmetric behaviours toward a dominant-fringe pattern in which the leader firm is retaliatory, and the follower is accommodating or passive.