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Modeling the impact of product quality on dynamic pricing and advertising policies

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  • Régis Chenavaz

    (KEDGE Business School [Marseille], AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

  • Gustav Feichtinger
  • Richard Hartl
  • Peter Kort

Abstract

The marketing-mix of price–quality and advertising–quality relationship is well studied. Less understood is the price–advertising–quality relationship. This article fills the gap, investigating the interplay between price, advertising, and quality in an optimal control model. Our results generalize the condition of Dorfman–Steiner in a dynamic context. Also, they point to the impact of greater product quality on the dynamic policies of pricing and advertising. Furthermore, a phase diagram analysis shows that quality develops monotonically in time and converges to a unique steady state. We also show that quality investment could either decrease or increase over time but this depends on its effectiveness. Our results spot the profitable opportunities of a firm managing a more complex marketing-mix.

Suggested Citation

  • Régis Chenavaz & Gustav Feichtinger & Richard Hartl & Peter Kort, 2020. "Modeling the impact of product quality on dynamic pricing and advertising policies," Post-Print hal-03575993, HAL.
    • Handle: RePEc:hal:journl:hal-03575993
    DOI: 10.1016/j.ejor.2020.01.035
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    3. Régis Chenavaz & Corina Paraschiv & Gabriel Turinici, 2021. "Dynamic Pricing of New Products in Competitive Markets: A Mean-Field Game Approach," Dynamic Games and Applications, Springer, vol. 11(3), pages 463-490, September.
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