Advertising, goodwill, and the Veblen effect

Régis Chenavaz and Amit Eynan

European Journal of Operational Research, 2021, vol. 289, issue 2, 676-682

Abstract: The increase of demand in price, an exception to the law of demand, is known as the Veblen effect. In this work, we consider a profit maximizing monopoly which by means of advertising impacts the price-demand relationship. We show that advertising and goodwill play an important role in making the Veblen effect more prevalent than expected. By employing optimal control theory we capture the evolution of the variables over time which may exhibit the Veblen effect where price and demand move in the same direction. Incorporating this dynamics into firms’ decisions has a promising impact on long-term profit. Consequently, it may even trigger a slew of studies on product line extension, competition and pricing by allowing firms to control their status.

Keywords: OR in marketing; Dynamic pricing; Dynamic advertising; Veblen effect; Conspicuous consumption (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:289:y:2021:i:2:p:676-682

DOI: 10.1016/j.ejor.2020.07.043

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