An Oligopoly Model of Dynamic Advertising Competition

Abstract:     
An oligopoly model is presented that allows the determination of feedback Nash equilibrium advertising strategies for an oligopoly. Analyses of symmetric and asymmetric oligopolies with the model show that unit contribution and advertising effectiveness have positive effects on a competitor's own advertising and steady-state sales, while discount rate and decay rate have negative effects. The asymmetric analysis further shows that unit contribution and advertising effectiveness affect positively, and discount rate and decay rate negatively, a competitor's rivals' advertising, but have effects in opposite directions regarding rivals' steady-state sales. The symmetric and asymmetric analyses also show that steady-state sales per competitor decline with the number of competitors in the oligopoly, while total oligopoly steady-state sales increase.

Keywords: Oligopoly, Advertising, Differential Game, Feedback Nash equilibrium

JEL Classifications: C61, C72, C73, L13, M3, M37

Working Paper Series