Understanding the Impact of Churn in Dynamic Oligopoly Markets
Automatica, 48, 2012, 2882-2887
6 Pages Posted: 22 Jun 2020
Date Written: 2012
Abstract
We incorporate the effects of churn, which refers to customers switching to competing brands, in a dynamic model of advertising for oligopoly markets. Each firm’s market share depends not only on own and competitors’ advertising decisions, but also on market churn. Applying differential game theory, we derive a feedback Nash equilibrium under symmetric and asymmetric competition. We obtain explicit solutions and discover the counter-intuitive result that, as market churn increases, firms should decrease advertising rather than increase it to counteract the impact of churn.
Keywords: Advertising, Churn, Oligopoly, Differential Games, Optimization
JEL Classification: C61, M11, M20
Suggested Citation: Suggested Citation