How do competitors react to each other's price-promotion and advertising actions? How do these reactions influence the net sales impact we observe? We answer these questions by performing a large-scale empirical study of the short-run and long-run reactions to promotion and advertising shocks in over 400 consumer product categories, over a four-year time span. Competitive reaction can be passive, accommodating or retaliatory. We first develop a series of expectations on the type and intensity of reaction behavior, and on the moderators of this behavior. These expectations are assessed in two ways. First, vector-autoregressive models quantify the short-run and long-run effect of a promotion or advertising action on competitive sales and on competitive reactions. By cataloging the numerical results, we are able to formulate empirical generalizations of reaction behavior ("how do they react?"). Second, we estimate structural models of reaction intensity, in function of various market and competitive characteristics ("what are the drivers of reaction?"). Finally, by comparing our findings on reaction behavior with those on promotion and advertising effectiveness, we are able to evaluate competitive reaction behavior ("are they reacting as they should?"). A major finding is that competitive reaction is predominantly passive. When it is present, it is usually retaliatory in the same instrument, but accommodating or retaliatory in a different instrument. There are very few long-run consequences of any type of reaction behavior. We also report on several moderating effects that are in line with expectations, and that support the presence of a certain amount of rationality in competitive reaction behavior. The net impact of the over-time effects of advertising and price-promotion attacks, competitive reactions and the sales effectiveness of each, is that competitors' sales are generally not affected, and especially not in the long run. We weigh the evidence that this sales neutrality is "natural" (i.e., due to the nature of consumer response) versus "managed" (i.e., due to the vigilance and effectiveness of competitors), and conclude in favor of the former.

advertising, competitive reactions, impulse response functions, price promotions
Statistical Decision Theory; Operations Research (jel C44), Business Administration and Business Economics; Marketing; Accounting (jel M), Marketing (jel M31), Advertising (jel M37)
Erasmus Research Institute of Management
hdl.handle.net/1765/175
ERIM Report Series Research in Management
Copyright 2002, J.B.E.M. Steenkamp, V.R. Nijs, D.M. Hanssens, M.G. Dekimpe, This report in the ERIM Report Series Research in Management is intended as a means to communicate the results of recent research to academic colleagues and other interested parties. All reports are considered as preliminary and subject to possibly major revisions. This applies equally to opinions expressed, theories developed, and data used. Therefore, comments and suggestions are welcome and should be directed to the authors.
Erasmus Research Institute of Management

Steenkamp, J-B.E.M, Nijs, V.R, Hanssens, D.M, & Dekimpe, M.G. (2002). Competitive Reactions and the Cross-Sales Effects of Advertising and Promotion (No. ERS-2002-20-MKT). ERIM Report Series Research in Management. Erasmus Research Institute of Management. Retrieved from http://hdl.handle.net/1765/175