IDEAS home Printed from https://ideas.repec.org/a/eee/ejores/v200y2010i2p486-497.html
   My bibliography  Save this article

Optimal pricing and advertising in a durable-good duopoly

Author

Listed:
  • Krishnamoorthy, Anand
  • Prasad, Ashutosh
  • Sethi, Suresh P.

Abstract

This paper analyzes dynamic advertising and pricing policies in a durable-good duopoly. The proposed infinite-horizon model, while general enough to capture dynamic price and advertising interactions in a competitive setting, also permits closed-form solutions. We use differential game theory to analyze two different demand specifications - linear demand and isoelastic demand - for symmetric and asymmetric competitors. We find that the optimal price is constant and does not vary with cumulative sales, while the optimal advertising is decreasing with cumulative sales. Comparative statics for the results are presented.

Suggested Citation

  • Krishnamoorthy, Anand & Prasad, Ashutosh & Sethi, Suresh P., 2010. "Optimal pricing and advertising in a durable-good duopoly," European Journal of Operational Research, Elsevier, vol. 200(2), pages 486-497, January.
  • Handle: RePEc:eee:ejores:v:200:y:2010:i:2:p:486-497
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0377-2217(09)00017-4
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Wang, Qinan & Wu, Zhang, 2001. "A duopolistic model of dynamic competitive advertising," European Journal of Operational Research, Elsevier, vol. 128(1), pages 213-226, January.
    2. Prasad A. Naik & Murali K. Mantrala & Alan G. Sawyer, 1998. "Planning Media Schedules in the Presence of Dynamic Advertising Quality," Marketing Science, INFORMS, vol. 17(3), pages 214-235.
    3. Kenneth R. Deal, 1979. "Optimizing Advertising Expenditures in a Dynamic Duopoly," Operations Research, INFORMS, vol. 27(4), pages 682-692, August.
    4. Chintagunta, Pradeep K & Jain, Dipak C, 1995. "Empirical Analysis of a Dynamic Duopoly Model of Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(1), pages 109-131, Spring.
    5. Barry L. Bayus, 1992. "The Dynamic Pricing of Next Generation Consumer Durables," Marketing Science, INFORMS, vol. 11(3), pages 251-265.
    6. Nicholas C. Petruzzi & Maqbool Dada, 1999. "Pricing and the Newsvendor Problem: A Review with Extensions," Operations Research, INFORMS, vol. 47(2), pages 183-194, April.
    7. Trichy V. Krishnan & Frank M. Bass & Dipak C. Jain, 1999. "Optimal Pricing Strategy for New Products," Management Science, INFORMS, vol. 45(12), pages 1650-1663, December.
    8. Thepot, Jacques, 1983. "Marketing and investment policies of duopolists in a growing industry," Journal of Economic Dynamics and Control, Elsevier, vol. 5(1), pages 387-404, February.
    9. Frank M. Bass & Trichy V. Krishnan & Dipak C. Jain, 1994. "Why the Bass Model Fits without Decision Variables," Marketing Science, INFORMS, vol. 13(3), pages 203-223.
    10. Frank M. Bass, 1969. "A New Product Growth for Model Consumer Durables," Management Science, INFORMS, vol. 15(5), pages 215-227, January.
    11. Gerald L. Thompson & Jinn-Tsair Teng, 1984. "Optimal Pricing and Advertising Policies for New Product Oligopoly Models," Marketing Science, INFORMS, vol. 3(2), pages 148-168.
    12. Pradeep K. Chintagunta & Naufel J. Vilcassim, 1992. "An Empirical Investigation of Advertising Strategies in a Dynamic Duopoly," Management Science, INFORMS, vol. 38(9), pages 1230-1244, September.
    13. Nair, Anand & Narasimhan, Ram, 2006. "Dynamics of competing with quality- and advertising-based goodwill," European Journal of Operational Research, Elsevier, vol. 175(1), pages 462-474, November.
    14. Dockner, Engelbert & Feichtinger, Gustav, 1986. "Dynamic advertising and pricing in an oligopology A Nash equilibrium approach," Journal of Economic Dynamics and Control, Elsevier, vol. 10(1-2), pages 37-39, June.
    15. Fruchter, Gila E. & Messinger, Paul R., 2003. "Optimal management of fringe entry over time," Journal of Economic Dynamics and Control, Elsevier, vol. 28(3), pages 445-466, December.
    16. Prasad A. Naik & Ashutosh Prasad & Suresh P. Sethi, 2008. "Building Brand Awareness in Dynamic Oligopoly Markets," Management Science, INFORMS, vol. 54(1), pages 129-138, January.
    17. Bruce Robinson & Chet Lakhani, 1975. "Dynamic Price Models for New-Product Planning," Management Science, INFORMS, vol. 21(10), pages 1113-1122, June.
    18. Frank M. Bass & Anand Krishnamoorthy & Ashutosh Prasad & Suresh P. Sethi, 2005. "Generic and Brand Advertising Strategies in a Dynamic Duopoly," Marketing Science, INFORMS, vol. 24(4), pages 556-568, February.
    19. Sorger, Gerhard, 1989. "Competitive dynamic advertising : A modification of the Case game," Journal of Economic Dynamics and Control, Elsevier, vol. 13(1), pages 55-80, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:eee:ejores:v:269:y:2018:i:1:p:206-217 is not listed on IDEAS
    2. Steffen Jørgensen & Simon-Pierre Sigué, 2015. "Defensive, Offensive, and Generic Advertising in a Lanchester Model with Market Growth," Dynamic Games and Applications, Springer, vol. 5(4), pages 523-539, December.
    3. Aust, Gerhard & Buscher, Udo, 2014. "Cooperative advertising models in supply chain management: A review," European Journal of Operational Research, Elsevier, vol. 234(1), pages 1-14.
    4. Avagyan, Vardan & Esteban-Bravo, Mercedes & Vidal-Sanz, Jose M., 2014. "Licensing radical product innovations to speed up the diffusion," European Journal of Operational Research, Elsevier, vol. 239(2), pages 542-555.
    5. Schlosser, Rainer, 2016. "Joint stochastic dynamic pricing and advertising with time-dependent demand," Journal of Economic Dynamics and Control, Elsevier, vol. 73(C), pages 439-452.
    6. Jørgensen, Steffen & Zaccour, Georges, 2014. "A survey of game-theoretic models of cooperative advertising," European Journal of Operational Research, Elsevier, vol. 237(1), pages 1-14.
    7. Huang, Jian & Leng, Mingming & Liang, Liping, 2012. "Recent developments in dynamic advertising research," European Journal of Operational Research, Elsevier, vol. 220(3), pages 591-609.
    8. repec:eee:ijrema:v:28:y:2011:i:3:p:218-230 is not listed on IDEAS
    9. Ouardighi, Fouad El & Sim, Jeong Eun & Kim, Bowon, 2016. "Pollution accumulation and abatement policy in a supply chain," European Journal of Operational Research, Elsevier, vol. 248(3), pages 982-996.
    10. Schlosser, Rainer, 2015. "Dynamic pricing and advertising of perishable products with inventory holding costs," Journal of Economic Dynamics and Control, Elsevier, vol. 57(C), pages 163-181.
    11. repec:eee:ejores:v:267:y:2018:i:2:p:570-584 is not listed on IDEAS
    12. Guseo, Renato & Mortarino, Cinzia, 2012. "Sequential market entries and competition modelling in multi-innovation diffusions," European Journal of Operational Research, Elsevier, vol. 216(3), pages 658-667.
    13. Schlosser, Rainer, 2017. "Stochastic dynamic pricing and advertising in isoelastic oligopoly models," European Journal of Operational Research, Elsevier, vol. 259(3), pages 1144-1155.
    14. Kogan, Konstantin, 2016. "Pricing competition with inventory considerations in a hazard rate-prone market of durables," Journal of Economic Dynamics and Control, Elsevier, vol. 73(C), pages 298-313.
    15. Jia, Junxiu & Zhang, Jiang, 2013. "Dynamic ordering and pricing strategies in a two-tier multi-generation durable goods supply chain," International Journal of Production Economics, Elsevier, vol. 144(1), pages 135-142.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:200:y:2010:i:2:p:486-497. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/eor .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.