Comparative advertising, where brands selling nearly homogenous products compare their product to that of another company, is increasingly used as a tool to gain market power within the industry. In 2005, Miller Lite, launched adverts attacking Bud Light, a brand produced by the Anheuser-Busch Brewing Company. Over the Memorial Day holiday the year before, Miller suffered as a result of price cuts undertaken by Anheuser Busch and Molson Coors.
In an attempt to revive itself, Miller executed an advertising campaign, titled “The Truth Hurts,” which directly attacked Bud Light, urging drinkers to switch to Miller Lite, claiming that it has more taste. Because beer is considered an “experience good,” quality is not perceived until one actually tries the beer. However, consumers are likely to be more responsive to advertising for these experience goods, because it provides an inexpensive way to learn about the good. Because the elasticity with the respect to advertising is likely to be high for beer, a large advertising expenditure undertaken by Miller is worthwhile. With the increased advertising effort, Miller gained 0.1 percent market share during the Memorial Day period compared with the year before, despite increased prices. It is likely that Miller gained market power, which concurred with its increase in advertising. Thus, in industries with a high responsiveness of sales to advertising will have high advertising intensity and inevitably high market power.
http://milwaukee.bizjournals.com/milwaukee/stories/2005/06/13/daily34.html
http://query.nytimes.com/gst/fullpage.html?res=940DE2DA153AF931A1575AC0A96E948260
Posted by Jessica Halper, Michael Ledwith, Jake Carter-Lovejoy and Drew Muir
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The companies with the highest market power and thus greater funds than those smaller companies obviously will be the ones able to afford advertising and increasing advertising intensity. We do not feel as if higher advertising leads to higher market power in that the companies doing the most advertising generally are already ahead in their market (i.e., Geico). When it was suggested that Miller gained .1% market share through advertising, couldnt its high market powered competitors just do the same back to Miller, focusing on something like popularity and status over taste? This seems like a Catch-22 in that you already need to have somewhat high market power to be able to afford intensified advertising, but it's hard to gain market power without advertisement.
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