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Dynamic Optimization of an Oligopoly Model of Advertising

Ashutosh Prasad
University of Texas at Dallas - School of Management

Suresh Sethi
University of Texas at Dallas - School of Management

November 2003

UTD School of Management Working Paper

Abstract:
We examine an oligopoly model of advertising competition where each firm's market share depends on its own and its competitors' advertising decisions. A differential game model is developed and used to derive the closed-loop Nash equilibrium under symmetric as well as asymmetric competition. We obtain explicit solutions under certain plausible conditions, and discuss the effects of an increase in the number of competing firms on advertising expenditure, market share and profitability.

Keywords: Advertising, Oligopoly, Differential games, Optimization

JEL Classifications: M31, M37, C61, C73

Working Paper Series

Date posted: January 30, 2007 ; Last revised: February 26, 2008

Suggested Citation

Prasad, Ashutosh and Sethi, Suresh, Dynamic Optimization of an Oligopoly Model of Advertising (November 2003). Available at SSRN: http://ssrn.com/abstract=960117

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Contact Information

Ashutosh Prasad (Contact Author) University of Texas at Dallas - School of Management ( email ) P.O. Box 830688 Richardson, TX 75083-0688 United States
Suresh Sethi University of Texas at Dallas - School of Management ( email ) 800 W. Campbell Road Richardson, TX 75083-0688 United States