Advertising Versus Sales In Demand Creation

Gal Hochman and Oded Hochman ()
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Oded Hochman: Dept. of Economics, Ben-Gurion University of the Negev

No 904, Working Papers from Ben-Gurion University of the Negev, Department of Economics

Abstract: Using an analytical model, we investigate the dynamics of a firm with market power whose advertisements and sales contribute to its customers’ stock of goodwill. An advertising campaign precedes the firm’s sales when customers are not familiar with its product, (e.g., movies), whereas sales of a new brand of a familiar product may start without advertising (e.g. Crocs shoes). For constant demand elasticity, both advertising and sales take place from the start. Two different types of solutions then emerge: one for low demand elasticity and one for high demand elasticity. These solutions are analyzed by phase diagrams. We also perform a numerical sensitivity analysis.

Keywords: Dynemic Advertisement; Diffusion; Adoption; Goodwill; Learning by Buying; Phase Diagram (search for similar items in EconPapers)
JEL-codes: D43 D9 L1 M37 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2009
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Journal Article: Advertising Versus Sales in Demand Creation (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:bgu:wpaper:0904

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