Affiliation:
1. Kellogg School of Management, Northwestern University
2. MIT Sloan School of Management, Massachusetts Institute of Technology
Abstract
Standard models of competition predict that firms will sell less when competitors target their customers with advertising. This is particularly true in mature markets with many competitors that sell relatively undifferentiated products. However, the authors present findings from a large-scale randomized field experiment that contrast sharply with this prediction. The field experiment measures the impact of competitors' advertising on sales at a private label apparel retailer. Surprisingly, for a substantial segment of customers, the competitors' advertisements increased sales at this retailer. This robust effect was obtained through experimental manipulation and by measuring actual purchases from large samples of randomly assigned customers. The effect size is also large, with customers ordering more than 4% more items in some categories in the treatment condition (vs. the control). The authors examine how these positive spillovers vary across product categories to illustrate the importance of product standards, customer learning, and switching costs. The findings have the potential to change our understanding of competition in mature markets.
Subject
Marketing,Economics and Econometrics,Business and International Management
Cited by
110 articles.
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