Is Comparative Advertising an Active Ingredient in the Market for Pain Relief? An Empirical Model of Advertising Content

This paper studies the role of advertising in product dierentiation in the Over- The-Counter analgesics market, with a special emphasis on the role of comparative advertising. I model the demand for pain relievers using a structural random coe¢ cients framework and modify it to allow comparative and noncomparative advertising to aect the perceived quality of a product. This paper is the …rst one to incorporate the content of advertising into the struc- tural demand model. I use a novel dataset which enables me to separate the eects of comparative and noncomparative advertising. Additionally, the estimated model allows information that is provided in the content of a comparative ad for one prod- uct to aect another product, a feature that is notably absent in empirical marketing literature. The results show that advertising and, especially, comparative advertising is a fruit- ful strategy for competing …rms to dierentiate their products and reduce a competi- tor's market share. The empirical results suggest that comparative advertising in this industry increases the perceived quality of a product more than noncomparative adver- tising. Among the …ndings is also the fact that comparative advertising is very eective at denigrating a competitor's brand. Additionally, the impact of comparative advertis- ing on demand is found to be signi…cantly shorter-lived than that of noncomparative advertising. Lastly, the propensity to be persuaded by comparative advertising diers among the analyzed demographic groups, with the oldest consumers being the most