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Dynamic Voluntary Advertising under Partial Market Coverage

Yohei Tenryu () and Keita Kamei
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Yohei Tenryu: Graduate School of Economics, Osaka University

No 909, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: We consider a dynamic voluntary advertising model with a duopoly. Firms can use advertising and price as competitive tools where product quality is a given and the market is not fully covered by consumers. Advertising also plays a role as a public good. In this situation, we investigate how advertising, profits, and welfare respond to changes in consumer preference and product quality. We mainly find that a higher maximum preference value leads to increases in advertising, profits, and consumer surplus but a decrease in incumbent consumers’ utility. We further find that a technology improvement by a low-quality firm increase its profit and consumer surplus if the technology gap is relatively large but if this is not the case, then the innovation could have different effects on firms’ profits and consumer surplus.

Keywords: Advertising; product quality; differential games; duopoly (search for similar items in EconPapers)
JEL-codes: C72 C73 L13 M37 (search for similar items in EconPapers)
Pages: 28pages
Date: 2014-12
New Economics Papers: this item is included in nep-bec, nep-com and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
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Persistent link: https://EconPapers.repec.org/RePEc:kyo:wpaper:909

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