Equilibrium pricing and advertising strategies in marketing channel

Equilibrium pricing and advertising strategies in marketing channel

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Article ID: iaor20001615
Country: United States
Volume: 102
Issue: 1
Start Page Number: 111
End Page Number: 125
Publication Date: Jul 1999
Journal: Journal of Optimization Theory and Applications
Authors: ,
Keywords: gaming
Abstract:

This paper is concerned with conflict and coordination in a two-member channel of distribution. We propose a differential game model that includes carryover effects of advertising, expressed by a retailer-specific stock of advertising goodwill. Pricing and advertising strategies for both firms are identified under channel conflict as well as coordination. Dynamic advertising policies are designed as stationary Markov perfect strategies. In a symmetric case, these strategies can be determined in closed form, taking into consideration explicitly nonnegativity constraints on advertising rates. We establish a global result for the relationship between the advertising strategies of the two firms under conflict and coordination.

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