Competitive Response and Equilibria

This paper investigates the relationship between market share and promotional expenditures the long run. Using data that span a decade and 91 product categories we find that market shares are stationary for a majority of the products in the data base. We find that relative promotional expenditures for the products are offsetting in the long run. Finally, for products whose market shares show a trend, it is difficult to discern the impact of relative promotional expenditure on the evolution of market share. This result generalizes the empirical finding of Bass et al. (Bass, F. M., M. M. Givon, M. U. Kalwani, D. Reibstein, G. P. Wright. 1984. An investigation into the order of the brand choice process. Marketing Sci.3(4) 267–287.) that “… offsetting competitive activity plays a role in the maintenance of what appears to be stationary and zero order behavior.”