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Dynamic Advertising Under Vertical Product Differentiation

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  • L. Colombo

    (University of Bologna)

  • L. Lambertini

    (University of Bologna)

Abstract

We investigate a dynamic advertising model where product quality is endogenous. In the differential game between single-product firms, there exists a parameter range where the low-quality firm uses a more efficient advertising technology and earns higher profits than the rival. Moreover, we show that equilibrium qualities are the same under duopoly, multiproduct monopoly, and social planning, the only distortion being concerned with the output levels.

Suggested Citation

  • L. Colombo & L. Lambertini, 2003. "Dynamic Advertising Under Vertical Product Differentiation," Journal of Optimization Theory and Applications, Springer, vol. 119(2), pages 261-280, November.
  • Handle: RePEc:spr:joptap:v:119:y:2003:i:2:d:10.1023_b:jota.0000005446.21301.d2
    DOI: 10.1023/B:JOTA.0000005446.21301.d2
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    Cited by:

    1. Luca Lambertini & Piero Tedeschi, 2007. "On the Social Desirability of Patents for Sequential Innovations in a Vertically Differentiated Market," Journal of Economics, Springer, vol. 90(2), pages 193-214, March.
    2. Lu, Lijue & Navas, Jorge, 2021. "Advertising and quality improving strategies in a supply chain when facing potential crises," European Journal of Operational Research, Elsevier, vol. 288(3), pages 839-851.
    3. L. Colombo, 2003. "Quality of service in the Congestible Internet: a Differential Game with Capacity Investments," Working Papers 485, Dipartimento Scienze Economiche, Universita' di Bologna.
    4. Yohei Tenryu & Keita Kamei, 2013. "Dynamic voluntary advertising and vertical product quality," Economics Bulletin, AccessEcon, vol. 33(1), pages 564-574.
    5. Luca Lambertini & Raimondello Orsini, 2015. "Quality Improvement and Process Innovation in Monopoly: A Dynamic Analysis," Working Paper series 15-12, Rimini Centre for Economic Analysis.
    6. L. Lambertini & R. Orsini, 2014. "Process Innovation and Product Quality Improvement in a Dynamic Monopoly," Working Papers wp926, Dipartimento Scienze Economiche, Universita' di Bologna.
    7. Chenavaz, Régis Y. & Feichtinger, Gustav & Hartl, Richard F. & Kort, Peter M., 2020. "Modeling the impact of product quality on dynamic pricing and advertising policies," European Journal of Operational Research, Elsevier, vol. 284(3), pages 990-1001.
    8. Yohei Tenryu & Keita Kamei, 2014. "Dynamic Voluntary Advertising under Partial Market Coverage," KIER Working Papers 909, Kyoto University, Institute of Economic Research.
    9. Tenryu, Yohei & Kamei, Keita, 2014. "Welfare Analysis of Dynamic Voluntary Advertising in Covered Markets," MPRA Paper 60694, University Library of Munich, Germany.
    10. Régis Chenavaz & Sajjad M. Jasimuddin, 2017. "An analytical model of the relationship between product quality and advertising," Post-Print hal-01685892, HAL.
    11. L. Colombo & L. Lambertini, 2003. "Quality and Advertising in a Dynamic Duopoly," Working Papers 490, Dipartimento Scienze Economiche, Universita' di Bologna.

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