Research On The Optimal Advertising Game Strategy Of Oligopoly Mobile Communication Industry

After a decade of fast development, Chinese mobile telecommunication industryhas mounted to the first place in the world both in terms of customer volume andnetwork capacity. During the period, the industry also has undergone a profoundrestructuring process which resulted in a duopoly of China Mobile and China Unicom.With the gap of resources and capabilities narrowing, marketing strategy of the twocarriers is becoming somehow crucial in the competition. Particularly, being anelement of marketing portfolio and an important means effecting the market shareand revenue of the carriers, advertising strategy is gaining more and more attentions.Under this circumstance, this thesis focuses on the optimal advertising strategy thatChinese mobile communication carriers should hold basing on an oligopoly model.The thesis first reviewed the latest development in service marketing andadvertising theory. Then the structure of Chinese mobile communication industry andtradition oligopoly models is closely examined. The following chapter summarizesthe conclusions of researches in the western literature concerning generic and brandadvertisement, and introduces the instruments of traditional game theory as well asdifferential game and dynamic optimization. With these prerequisite, the thesisperform both qualitative and quantitative study on the optimal advertising strategy ofChinese mobile communication carriers.First, the thesis conducts a qualitative study by inspecting the effects ofadvertising strategy on American banking and auto-manufacturing industry andanalyzing the characteristics of Chinese mobile communication industry. The analysisdiscovers that due to the high entry barrier of the industry and intangibility of theproduct, the carriers need not to sustain very high intensity of advertisement to retardpossible competitors, and should allocate their resources more to generic andinformative advertisement. On the other hand, lower brand-switching costs will pushthe carriers to increase their advertising expenditure, especially in persuasiveadvertisement.Furthermore, based on the Sethi model, a modified model for optimizingadvertising strategy in an oligopoly market is discussed. Then, the thesis performs anempirical test on the model by simulation. The test reveals several important facts,including:1. The ability of deriving revenue from one's market share is the mostimportant factor in deciding the market share and optimal advertisingexpenditure;therefore the carriers should base their decisions on thisability and focus on improving it, while the important way of improvingthe ability comes out to be improving the goodwill and accumulating brandequity.2. The effect of advertisement on the market share competition of two closecompetitors is apparent. And the effect has a time delay. What's more, asharp change in advertising expenditure will cause a long period offluctuation of market structure. Hence, mobile carriers should graduallyadjust their advertising policy according to their profitability and financialsituation to respond to the change of their competitor's policy and businessenvironment, in order to avoid advertising war and industry turbulenceinducing by a sudden policy adjustment.Finally, since this thesis applies a general approach to the research, the outcomesshould be helpful for other oligopoly industry.