Forward advertising: A competitive analysis of new product preannouncement

This paper develops a game-theoretical model wherein duopolistic firms launch a new product and invest in informative advertising. We allow firms to adopt new product preannouncement (NPP), which is a strategy of forward advertising for a future product. The results show that NPP relaxes market competition and that firms with different advertising costs have different incentives to apply NPP. We also allow firms to adopt retaliatory preannouncement as a response to NPP, and find that NPP is always good for the high-cost firm but may be bad for the low-cost firm. We further investigate the welfare effects of NPP, showing that NPP makes customers worse off while has ambiguous effects on total welfare.