Dynamics of competing with quality- and advertising-based goodwill

Dynamics of competing with quality- and advertising-based goodwill

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Article ID: iaor20083706
Country: Netherlands
Volume: 175
Issue: 1
Start Page Number: 462
End Page Number: 464
Publication Date: Nov 2006
Journal: European Journal of Operational Research
Authors: ,
Keywords: game theory, advertising
Abstract:

Goodwill formation is a complex process and many factors influence the formation of goodwill of a firm. The implications of advertising enabled goodwill formation are reported in several articles in the research literature. In this paper, we extend this stream of research by including quality in the goodwill formation process. We adopt a dynamic model of competition utilizing a differential game approach and derive expressions for open-loop Markovian Nash equilibrium investments in advertising and quality. The insights gained from the analysis of our model and from the equilibrium solutions are presented in the form of research propositions.

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