Lidl And Aldi's Game Theory In An Advertising Campaign

Great Essays
Deciding on the investment and the extent of an advertising campaign is an important decision for every type of business. Therefore these are big decisions for the two biggest, competing “”deep discount” grocers” (The Economist, 2015) in the world, Lidl and Aldi, too. They are daily competing against each other. In this competition the extent and investment on marketing campaigns takes over a key role. By deciding on those important actions both discounters have to take the advertising actions of the respectively other into account. That is the point when strategic interaction comes into play and the closely related topic of `game theory` can be applied (McDowell, Thom, Pastine, Frank & Bernanke, 2012).

This short paper will outline how the
…show more content…
The strategies are investing a high or small budget in advertising. In this `game` Aldi has a dominant strategy to choose the high budget, because it does not matter, what Lidl does, it always causes the highest payoff for them. Anticipating that, Lidl chooses also the high budget, because if A decide on a high budget this strategy brings the highest payoff for them. Consequently both choosing a high budget in this game is a Nash Equilibrium. The strategic interactions of both grocery retailers lead to this equilibrium.
In real life this happened as well. Both “went on a media offensive” (The Economist, 2015) in the year 2014 by doubling the budget (Aldi) or still investing a high budget (Lidl) (The Economist, 2015).
They implicitly make use of two basic economic principles, too, because investing more in advertising means having less budget for other expenses. That is called `The Scarcity Principle`. Furthermore both chains apply the `Cost-Benefit-Principle` by only deciding on a higher budget when the higher budget brings at least as much benefit as it costs. If the costs exceed the extra revenue made by the higher scale of advertising, the chain should not invest more in the advertising according to the

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