Comparative Advertising and Retailer Participation∗

Studies find that about 20-30% of all advertising is comparative in nature. Many of the comparisons are on products sold with the help of retailers. For a retailer, a manufacturer’s comparative ad campaign is a double-edged sword: an increase in its sales of the favored manufacturer’s product is often accompanied by a decrease in its sales of the product of comparison. In this paper, we consider when a retailer will gain from, and when it will lose from, a manufacturer’s comparative ad campaign. Since the success of the manufacturer’s campaign will often depend on enlisting the support of its retailers, we also consider a retailer’s participation decision (will the retailer inform consumers of the manufacturer’s campaign at the point-of-sale). We find that (1) a retailer may want to participate in the manufacturer’s campaign even if the campaign makes it worse off, (2) the group of consumers to whom the comparative ads are targeted is crucial in determining whether a retailer gains or loses, (3) the same comparative ad campaign can affect a retailer’s profit and participation decision differently depending on the market share of the manufacturer whose product is favored, and (4) the more positive the comparative ad campaign, the more likely a retailer will benefit from the ad campaign and participate in it.