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- Title
Competitive Advertising under Uncertainty: A Stochastic Differential game Approach.
- Authors
Prasad, A.; Sethi, S. .
- Abstract
We analyze optimal advertising spending in a duopolistic market where each firm's market share depends on its own and its competitor's advertising decisions, and is also subject to stochastic disturbances. We develop a differential game model of advertising in which the dynamic behavior is based on the Sethi stochastic advertising model and the Lanchester model of combat. Particularly important to note is the morphing of the sales decay term in the Sethi model into decay caused by competitive advertising and noncompetitive churn that acts to equalize market shares in the absence of advertising. We derive closed-loop Nash equilibria for symmetric as well as asymmetric competitors. For all cases, explicit solutions and comparative statics are presented.
- Subjects
ADVERTISING; COMMUNICATION in marketing; ADVERTISERS; ECONOMIC competition; DIFFERENTIAL games; GAME theory
- Publication
Journal of Optimization Theory & Applications, 2004, Vol 123, Issue 1, p163
- ISSN
0022-3239
- Publication type
Article
- DOI
10.1023/B:JOTA.0000043996.62867.20