A duopolistic model of dynamic competitive advertising

A duopolistic model of dynamic competitive advertising

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Article ID: iaor20014021
Country: Netherlands
Volume: 128
Issue: 1
Start Page Number: 213
End Page Number: 226
Publication Date: Jan 2001
Journal: European Journal of Operational Research
Authors: ,
Keywords: game theory
Abstract:

This paper proposes a differential game model of competitive advertising decisions for non-durable products by extending the Lanchester model and the Deal model of competitive advertising in the literature. The proposed model is compared empirically with the Lanchester model for model fitting and forecast accuracy. It is shown that the model is suitable for an actual market and out-performs the Lanchester model in forecast accuracy. The model provides a sensible modeling alternative to the Lanchester model for the study of dynamic competitive advertising decisions. Necessary and sufficient conditions for open-loop and closed-loop Nash equilibrium solutions to the model are discussed. A numerical algorithm for open-loop and closed-loop Nash strategies to the model is developed.

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