Optimal Control of an Oligopoly Model of Advertising
Proceedings of the 13th IFAC Symposium on Information Control Problems in Manufacturing, INCOM 2009
UC Davis Graduate School of Management Research Paper No. 11-09
7 Pages Posted: 13 Apr 2009
Date Written: April, 10 2009
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: Sethi model, advertising, dynamic games, game theory, differential games, optimal control, close-loop Nash equilibrium, oligopoly, Feedback Nash equilibrium
JEL Classification: C61, C72, C73, D43, L13, M37
Suggested Citation: Suggested Citation
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