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
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: Suggested Citation