Long-run strategic advertising and short-run Bertrand competition

Research output: Book/ReportReportOther research output

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Abstract

We model and analyze strategic interaction over time in a duopoly. Each period the firms independently and simultaneously take two sequential decisions. First, they decide whether or not to advertise, then they set prices for goods which are imperfect substitutes. Not only the own, but also the other firm's past advertisement e¤orts a¤ect the current "sales potential" of each firm. How much of this potential materializes as immediate sales, depends on current advertisement decisions. If both firms advertise, "sales potential" turns into demand, otherwise part of it "evaporates" and does not materialize. We determine feasible rewards and (subgame perfect) equilibria for the limiting average reward criterion. Uniqueness of equilibrium is by no means guaranteed, but Pareto efficiency may serve very well as a refinement criterion for wide ranges of the advertisement costs.
Original languageUndefined
Place of PublicationJena, Germany
PublisherMax Planck Gesellschaft
Number of pages25
Publication statusPublished - 2011

Publication series

NamePapers on economics & evolution, ISSN 1430-4716
PublisherMax Planck Gesellschaft

Keywords

  • IR-76745

Cite this

Joosten, R. A. M. G. (2011). Long-run strategic advertising and short-run Bertrand competition. (Papers on economics & evolution, ISSN 1430-4716). Jena, Germany: Max Planck Gesellschaft.
Joosten, Reinoud A.M.G. / Long-run strategic advertising and short-run Bertrand competition. Jena, Germany : Max Planck Gesellschaft, 2011. 25 p. (Papers on economics & evolution, ISSN 1430-4716).
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Joosten, RAMG 2011, Long-run strategic advertising and short-run Bertrand competition. Papers on economics & evolution, ISSN 1430-4716, Max Planck Gesellschaft, Jena, Germany.

Long-run strategic advertising and short-run Bertrand competition. / Joosten, Reinoud A.M.G.

Jena, Germany : Max Planck Gesellschaft, 2011. 25 p. (Papers on economics & evolution, ISSN 1430-4716).

Research output: Book/ReportReportOther research output

TY - BOOK

T1 - Long-run strategic advertising and short-run Bertrand competition

AU - Joosten, Reinoud A.M.G.

PY - 2011

Y1 - 2011

N2 - We model and analyze strategic interaction over time in a duopoly. Each period the firms independently and simultaneously take two sequential decisions. First, they decide whether or not to advertise, then they set prices for goods which are imperfect substitutes. Not only the own, but also the other firm's past advertisement e¤orts a¤ect the current "sales potential" of each firm. How much of this potential materializes as immediate sales, depends on current advertisement decisions. If both firms advertise, "sales potential" turns into demand, otherwise part of it "evaporates" and does not materialize. We determine feasible rewards and (subgame perfect) equilibria for the limiting average reward criterion. Uniqueness of equilibrium is by no means guaranteed, but Pareto efficiency may serve very well as a refinement criterion for wide ranges of the advertisement costs.

AB - We model and analyze strategic interaction over time in a duopoly. Each period the firms independently and simultaneously take two sequential decisions. First, they decide whether or not to advertise, then they set prices for goods which are imperfect substitutes. Not only the own, but also the other firm's past advertisement e¤orts a¤ect the current "sales potential" of each firm. How much of this potential materializes as immediate sales, depends on current advertisement decisions. If both firms advertise, "sales potential" turns into demand, otherwise part of it "evaporates" and does not materialize. We determine feasible rewards and (subgame perfect) equilibria for the limiting average reward criterion. Uniqueness of equilibrium is by no means guaranteed, but Pareto efficiency may serve very well as a refinement criterion for wide ranges of the advertisement costs.

KW - IR-76745

M3 - Report

T3 - Papers on economics & evolution, ISSN 1430-4716

BT - Long-run strategic advertising and short-run Bertrand competition

PB - Max Planck Gesellschaft

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Joosten RAMG. Long-run strategic advertising and short-run Bertrand competition. Jena, Germany: Max Planck Gesellschaft, 2011. 25 p. (Papers on economics & evolution, ISSN 1430-4716).