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Inverted-U aggregate investment curves in a dynamic game of advertising

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  • Lambertini, Luca
  • Zaccour, Georges

Abstract

We revisit the relationship between market power and firms’ investment incentives in a noncooperative differential oligopoly game where firms sell differentiated goods and invest in advertising to increase the brand equity of their respective goods. The feedback equilibrium obtains under open-loop rules, and aggregate expenditure on goodwill takes an inverted-U shape under both Cournot and Bertrand behaviour, provided product differentiation is sufficiently high. Total industry expenditure is higher under Cournot competition.

Suggested Citation

  • Lambertini, Luca & Zaccour, Georges, 2015. "Inverted-U aggregate investment curves in a dynamic game of advertising," Economics Letters, Elsevier, vol. 132(C), pages 34-38.
    • Handle: RePEc:eee:ecolet:v:132:y:2015:i:c:p:34-38
    DOI: 10.1016/j.econlet.2015.04.010
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    1. Polemis, Michael L. & Stengos, Thanasis & Tzeremes, Nickolaos G., 2020. "Advertising expenses and operational performance: Evidence from the global hotel industry," Economics Letters, Elsevier, vol. 192(C).

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    More about this item

    Keywords

    Goodwill; Oligopoly; Advertising; Differential games;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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