The Model of a New Self-owned Brand Product’ Ad Expenditure and Pricing

A new self-owned brand firm (NBF), by changing strategies of advertising expenditure and pricing, is able to compete with an incumbent brand firm (IBF) and maximize its profit. When the existing competitive market share (CMS) is sufficiently large, a sub game Nash equilibrium in the game between NBF and IBF is proven. In equilibrium, the level of NBF’s price and advertising expenditure is higher than the corresponding level of the incumbent one. And, the equilibrium price and advertising expenditure of the new brand product are related to the size of CMS and the degree of price sensitivity. The larger the size of CMS or the smaller the price sensitivity, the higher level of NBF’s price and advertising spending is. In addition, when CMS is relatively smaller, NBF should take the following-leader strategy to make the level of NBF’s price and advertising spending equal IBF’s. The research results have important guiding significance for OEM enterprises to devise their own brands.