Sleeping with the Enemy: Should Competitors Share the Same Advertising Agency?

The possibility of account conflicts is generally regarded as a very serious problem in the advertising industry. The problem is that once an advertising agency works for a firm it learns private information which it can use strategically, i.e., make available to the firm's competitors. But, in oligopolistic situations, knowing more about a competitor may not necessarily be beneficial, because the competitor may react to this knowledge. Similarly, allowing the competitor to have more information may not necessarily be detrimental. In fact, the decision of whether to share the same agency depends on three effects, which are identified here: (1) the decision-making framework effect, (2) the strategic effect, and (3) the uncertainty effect. The first effect always favors sharing the same gency. The direction of the latter two effects is ambiguous. This ambiguity is resolved against the sharing of agencies when (1) the competitor's reaction to the firm's situation is especially harmful in that particular situation (strategic effect) and (2) the competitor's actions are increasingly harmful (uncertainty effect).