The effect of production process economies and price on optimal marketing expenditures and performance

Previous research has failed to incorporate production process economies (volume and dynamic economies of scale, and an absolute cost advantage) and price’s impact on optimal marketing expenditures. The objective of this research was to identify the impact of production process economies and price on optimal marketing expenditures, profit and market share of firms in a theoretical duopoly in the growth stage of their life cycle. Results of the simulation confirm and extend previous research that production process economies and price play a major role in determining the optimal marketing expenditures, profit and market share of firms, thus establishing the importance and impact of a firm’s manufacturing strategy (cost function) on its performance and competitive position.