Advertising patterns in a dynamic oligopolistic growing market with decay

Rabah Amir (), Dominika Machowska and Michael Troege

Journal of Economic Dynamics and Control, 2021, vol. 131, issue C

Abstract: A finite-horizon Lanchester model of a (continuous-time) differential game of oligopolistic advertising is considered, and the analytical form of the unique closed-loop Nash equilibrium derived and analyzed. In contrast to previous research, the finite-horizon Lanchester model is modified to include two novel factors. First, a growing market allows us to analyze the competition for a potential market via generic advertising, with the latter giving the otherwise zero-sum-like game a public good dimension. Second, it is assumed that each firm’s market share declines in the absence of advertising efforts. The analysis investigates the Markovian (closed-loop) equilibrium calling for firms operating in a competitive growing market to invest in offensive, defensive or generic advertising in all or part of the decision horizon. In the most novel part of the paper, the non-cooperative outcome is compared to the Pareto-optimal or cooperative solution. The conclusions derived reveal significant differences in the resulting patterns of co-existence of the different dimensions of advertising over time, relative to the existing literature.

Keywords: Dynamic oligopoly; Growing market; Market share decay; Lanchester model; Cooperative advertising (search for similar items in EconPapers)
JEL-codes: C73 L13 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:131:y:2021:i:c:s0165188921001640

DOI: 10.1016/j.jedc.2021.104229

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