Reply to “When Does Lag Structure Really Matter … Indeed?”

Bultez and Naert (Bultez, A. V., P. A. Naert. 1988. When does lag structure really matter … indeed? Management Sci. 34(July).) provide an analytical example and several simulations that show profits to be more sensitive to advertising lag structure misspecification the higher the advertising goodwill elasticity. We explain how this result is consistent with our (Magat, McCann, and Morey [Magat, W. A., J. M. McCann, R. C. Morey. 1986. When does lag structure really matter in optimizing advertising expenditures? Management Sci. 32(February) 182–193.]) result that a given amount of advertising error induced by misspecification causes greater reductions in profits the lower the advertising goodwill elasticity. We also use their simulation results to identify the pattern of prior advertising used in estimation as an important determinant of when misspecification matters in estimating advertising lag structures.

Duke Scholars

Author John M. McCann Fuqua School of Business