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A differential game model of the marketing-operations interface

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  • Erickson, Gary M.

Abstract

In the development of their dynamic strategies, the marketing and operations functions within a firm have differing objectives, and conflict between the two functions is common. The strategic interdependence involving marketing and operations decisions is modeled as a noncooperative differential game. Demand is assumed to be a function of price and advertising goodwill, and marketing controls price and advertising to maximize its discounted stream of revenue net of advertising costs. Backlogging is allowed, and operations controls production to minimize its discounted stream of production and backlog costs. A feedback Nash equilibrium is derived for the game, which allows a solution of the system of differential equations for goodwill and backlog, and is analyzed to study the nature of the dynamic strategies for price, advertising, and production.

Suggested Citation

  • Erickson, Gary M., 2011. "A differential game model of the marketing-operations interface," European Journal of Operational Research, Elsevier, vol. 211(2), pages 394-402, June.
    • Handle: RePEc:eee:ejores:v:211:y:2011:i:2:p:394-402
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    20. Liu, Yang & Zhang, Jianxiong & Zhang, Shichen & Liu, Guowei, 2017. "Prisoner’s dilemma on behavioral choices in the presence of sticky prices: Farsightedness vs. myopia," International Journal of Production Economics, Elsevier, vol. 191(C), pages 128-142.
    21. Gila E. Fruchter & Hussein Naseraldin, 2021. "Coordinating Carbon Emissions via Production Quantities: A Differential Game Approach," Games, MDPI, vol. 12(1), pages 1-16, February.
    22. Schlosser, Rainer, 2017. "Stochastic dynamic pricing and advertising in isoelastic oligopoly models," European Journal of Operational Research, Elsevier, vol. 259(3), pages 1144-1155.
    23. Zongsheng Huang & Jiajia Nie & Sang-Bing Tsai, 2017. "Dynamic Collection Strategy and Coordination of a Remanufacturing Closed-Loop Supply Chain under Uncertainty," Sustainability, MDPI, vol. 9(5), pages 1-18, April.
    24. Liu, Guowei & Zhang, Jianxiong & Tang, Wansheng, 2015. "Strategic transfer pricing in a marketing–operations interface with quality level and advertising dependent goodwill," Omega, Elsevier, vol. 56(C), pages 1-15.

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