Dynamic Optimization of an Oligopoly Model of Advertising

UTD School of Management Working Paper

33 Pages Posted: 30 Jan 2007 Last revised: 26 Feb 2008

See all articles by Ashutosh Prasad

Ashutosh Prasad

University of California, Riverside (UCR)

Suresh Sethi

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: November 2003

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 Classification: M31, M37, C61, C73

Suggested Citation

Prasad, Ashutosh and Sethi, Suresh, Dynamic Optimization of an Oligopoly Model of Advertising (November 2003). UTD School of Management Working Paper , Available at SSRN: https://ssrn.com/abstract=960117 or http://dx.doi.org/10.2139/ssrn.960117

Ashutosh Prasad (Contact Author)

University of California, Riverside (UCR)

900 University Avenue
Riverside, CA CA 92521
United States

Suresh Sethi

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 W. Campbell Road, SM30
Richardson, TX 75080-3021
United States