Momentum in Dynamic Contests
30 Pages Posted: 1 Dec 2015
Date Written: November 28, 2015
We consider a two-player advertising race subject to momentum. Momentum is modelled as a complementarity between current and past campaign spending in a way that is reminiscent of models of addiction and habit formation: the more effective a player’s past spending has been, the more effective her future spending will be. For symmetric races in which the effectiveness of spending is of the Cobb-Douglas form, we derive analytic solutions for the equilibrium path. Our theory rationalizes alternative campaign strategies including aggressive openings and the development of a war chest for a final campaign assault.
Keywords: momentum, differential games, advertising games, political campaigns
JEL Classification: C73, M37, P16
Suggested Citation: Suggested Citation