Is it reasonable to expect firms to coordinate their advertising and promotional expenditure levels? While firms may achieve an implicit agreement not to escalate advertising budgets beyond present levels, it is unlikely that they will achieve agreement to reduce budget levels to a point that would seem to be more efficient in terms of total profitability. In part this reluctance is undoubtedly due to the distrust that a firm may feel about reducing its own advertising expenditures while rivals may not in fact reduce theirs. Given the lead time required to prepare additional promotional campaigns, a firm that double-crosses its rivals could gain a market share advantage that might be impossible to regain.
A second factor militating against the coordination of advertising and promotional competition is that these activities are seen as an appropriate forum for the competitive instincts of rival firms, an avenue for civilized competition that should not be closed to the firms. Promotional competition requires skill and planning and the services of talented people. Price competition, on the other hand, requires little planning and not much skill on the part of the instigator, yet the impact upon the profitabilities of all firms may be significantly adverse. To avoid active competitive shifting to the price arena, firms prefer to compete on a promotional level where gains in market shares and profits are the rewards for exceptional abilities on the promotional side.