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Advertising with Spillover Effects in a Differential Oligopoly Game With Differentiated Goods

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  • R. Cellini
  • L. Lambertini

Abstract

We consider a differentiated oligopoly where firms compete a la Cournot in the market phase, and each firms may invest in advertising activity, to enlarge its market size. Each firm`s advertising effort has positive external effects on the market size of all rivals. We derive the open-loop (and the coincident closed-loop) Nash equilibrium, and the optimal behavior of a cartel involving all firms setting both quantities and advertising efforts so as to maximize joint profits. The comparative assessment of these equilibria shows that a cartel may produce a steady state where social welfare is higher than the social welfare level associated wit the non-cooperative setting. This is due to the positive externalities from advertising activity.

Suggested Citation

  • R. Cellini & L. Lambertini, 2002. "Advertising with Spillover Effects in a Differential Oligopoly Game With Differentiated Goods," Working Papers 430, Dipartimento Scienze Economiche, Universita' di Bologna.
  • Handle: RePEc:bol:bodewp:430
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    References listed on IDEAS

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    1. d'Aspremont, Claude & Jacquemin, Alexis, 1988. "Cooperative and Noncooperative R&D in Duopoly with Spillovers," American Economic Review, American Economic Association, vol. 78(5), pages 1133-1137, December.
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    6. R. Cellini & L. Lambertini, 2000. "Non-Linear Market Demand and Capital Accumulation in A Differential Oligopoly Game," Working Papers 372, Dipartimento Scienze Economiche, Universita' di Bologna.
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    Cited by:

    1. Andrea Mantovani & Giordano Mion, 2006. "Advertising and endogenous exit in a differentiated duopoly," Recherches économiques de Louvain, De Boeck Université, vol. 72(1), pages 19-48.
    2. repec:rim:rimwps:48-07 is not listed on IDEAS
    3. G. F. Gori & L. Lambertini, 2014. "Trade, externalities, and the impact of asymmetric information on trade policy," Working Papers wp930, Dipartimento Scienze Economiche, Universita' di Bologna.
    4. Feichtinger, Gustav & Lambertini, Luca & Leitmann, George & Wrzaczek, Stefan, 2016. "R&D for green technologies in a dynamic oligopoly: Schumpeter, arrow and inverted-U’s," European Journal of Operational Research, Elsevier, vol. 249(3), pages 1131-1138.

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