An Empirical Model of Advertising Dynamics (original) (raw)

A model of optimal advertising expenditures in a dynamic duopoly

Atlantic Economic Journal, 2001

This paper develops a dynamic model of oligopolistic advertising competition. The model is general enough to include predatory advertising and informative advertising as particular cases. The analysis is conducted in a differential game framework and compares the open-loop and feedback equilibria to the efficient outcome. It is found that for the informative advertising competition game, advertising levels are closer to the collusive outcomes in a feedback equilibrium. In the case of predatory advertising, expenditures are inefficiently high in a feedback equilibrium and the open-loop solution is more efficient. (JEL L13, M37; Atlantic Econ. J., June 01. ©All Rights Reserved) AEJ: JUNE 2001, VOL. 29, NO. 2 136 feedback strategies, the outcome is more competitive than in the open-loop equilibrium, which approaches the Cournot equilibrium price. 2 In an advertising competition game, also finds that using feedback strategies instead of open-loop controls does not necessarily increase payoffs (see also ).

Optimal Advertising with Persistent Demand

How much of a firm's budget should it devote to advertising? If it devotes too little money, the marginal cost of an additional advertising dollar will be below the gain from additional customers, causing it to miss out on a potentially substantial increase in revenue. If it devotes too much money, the firm ceases to reach new customers, and wastes money as a result. We study a model with stochastic demand shocks, where a firm aims to equalize marginal expenditures on advertising with expected gains from demand. We show that a firm that tracks previous patterns in demand significantly outperforms a firm that fails to do so. We also develop a model of persistent shocks and menu costs that can be generalized to further fields for future research.

A MARKOVIAN MODEL OF CONSUMER BUYING BEHAVIOR AND OPTIMAL ADVERTISING PULSING POLICY

Computers & Operations Research, 1993

This paper deals with the problem of scheduling optimal advertising policy for a very general class of consumer buying behavior models. To avoid analysis of a complex multitude of social-psychological and cultural-environmental factors affecting the consumer's decision we construct a stochastic model. Because of the diminishing effect of even advertising policy, we consider advertising pulsing policy (APP) as a means to increase advertising effectiveness. By reducing the probabilistic evolution of sales and consumers' attitude over time to their means, multivariate linear least-square regression is used to estimate the market parameters and validate the model. The prescribed strategy scheduling maximizes the discounted profit function, which includes uncertainty in sales over a finite campaign duration. The superiority of APP over an even advertising policy is illustrated numerically.

A STOCHASTIC MODEL OF OPTIMAL ADVERTISING PULSING POLICY

Computers & Operations Research, 1987

A descriptive model of stochastic sales response to advertising pulsing policy is presented. The prescribed strategy is the maximizer of a discounted profit function which includes the decision maker's attitude towards risk. Markovian assumptions concerning the sales behavior are made and the randomization technique for computing the probabilistic levels of sales is used. Maximum likelihood procedures for the estimation of market parameters are also discussed.

A Dynamic Model of Advertising and Product Differentiation

Review of Industrial Organization, 1998

This paper analyses a differential game of duopolisticrivalry through time where firms can use advertisingand price as competitive tools. Two cases are consideredwhereby: (1) advertising has the main effect ofincreasing market size and firms differ in productionefficiency; (2) advertising has both predatory and cooperativeeffects in a symmetric market. The former shows thatmarket shares and advertising shares are positivelycorrelated and that market size increases with thedifference in firms' relative efficiency. The latterhighlights the differences in the feedback andopen-loop strategies. It is shown that firms' advertisingare strategic complements and that profits are higherin the feedback equilibrium because firms advertise more.The applicability of the model in markets wherefranchise contracts and dealership agreements operateis also discussed.

Dynamic optimization of an oligopoly model of advertising

2003

Abstract: We examine an oligopoly model of advertising competition where each firm's market share depends on its own and its competitors' advertising decisions. A differential game model is developed and used to derive the closed-loop Nash equilibrium under symmetric as well as asymmetric competition. We obtain explicit solutions under certain plausible conditions, and discuss the effects of an increase in the number of competing firms on advertising expenditure, market share and profitability.

Advertising Competition in a Dynamic Oligopoly with Multiple Brands

A model is developed that allows the derivation of feedback Nash equilibrium advertising strategies for oligopolistic competitors. The model is an extension of a modified Vidale-Wolfe model that incorporates multiple brands per competitor. The resulting expressions of feedback advertising strategies are combined with those for sales dynamics in an empirical model that is applied to the carbonated soft drink market, which involves three primary competitors and five primary brands. The research provides the following contributions:

Dynamics of retail advertising: Evidence from a field experiment

2009

It is accepted that advertising can have a short-run effect on sales. However, our understanding of the dynamic effects of advertising is incomplete. For example, a current advertisement for the retailer Land's End can increase immediate sales, but how will the advertisement affect subsequent consumer demand? If there are long-run effects, how will they vary among consumers?

Pulsing Policies for Aggregate Advertising Models

Marketing Science, 1992

Classical continuous-time models of advertising expenditure tend to fall into two categories, those that prescribe spending at a constant level and those that prescribe switching infinitely quickly between several different levels of spending. The latter practice, chattering, though impossible literally, can be interpreted in practice to imply that the faster the switching the better. Empirical evidence, however, sometimes suggests the superiority ofpulsing, alternating between different spending levels with finite frequency, for example in a periodic fashion. Furthermore, the actual behavior of marketing managers, who often advertise in flights or pulses, appears to differ from the optimal policies many current models prescribe. Showing how structural properties of common advertising models rule out finite-frequency pulsing a priori, we develop a continuous-time model for which finite-frequency pulsing can be optimal. Relaxing these structural assumptions yields a new class of models which, for certain values of their parameters, lead to periodic pulsing optima; this is accomplished by inclusion of both S-shaped response and an exponential-smoothing filter. These theoretical results are illustrated through simulation of a variant of the Vidale-Wolfe model.