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Investigating the role of customer churn in the optimal allocation of offensive and defensive advertising: the case of the competitive growing market

Machowska Dominika ()
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Machowska Dominika: University of Lodz, Faculty of Economics and Sociology, Department of Econometrics, POW 3/5, 90-255 Łódź, Poland

Economics and Business Review, 2018, vol. 4, issue 2, 3-23

Abstract: The paper investigates the optimal allocation between defensive and offensive advertising efforts in a dynamic, growing market in which two companies are competing for market share. The study described in this paper extends the existing literature on dynamic advertising competition by considering a market that is in the growth phase and by including the heterogeneous decay rate of market share. A modified Lanchester is employed to describe the dynamics of market share by model. The goal of companies operating in this domain is to maximize their profits over a finite decision horizon. Based on the differential game approach the Markovian Nash strategies for offensive and defensive advertising activities are determined. Additionally, an analysis of the extent to which this solution is sensitive to changes in potential market and the rate of customer churn is made.

Keywords: Lanchester model; Markovian Nash equilibrium; defensive and offensive advertising; potential market; customer churn (search for similar items in EconPapers)
Date: 2018
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