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  • Klos, Tomas B.

    (Groningen University)

We investigate the impact of advertising in a simple static differentiated duopoly model. First, we consider the Nash equilibrium of the situation in which the duopolistic firms compete simultaneously with two instruments, i.e. the prices and the advertising expenditures. Second, we examine the Nash equilibrium of the situa-tion in which the firms only compete in prices and do not advertise at all. Next, we compare the two different Nash equilibria in order to assess the impact of advertising. In particular, we characterize in terms of the model parameters the circumstances in which the profits, outputs and/or prices of each firm are greater (smaller) in the Nash equilibrium with advertising than in the Nash equilibrium without advertising. We show that the results depend on (a) the size of the (positive) effect of advertising of a firm on its own demand, (b) the size and nature (stimulating or adverse) of the cross-effect of the advertising of each firm on the demand of the other firm, and (c) the size of the autonomous demand of the firms.

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File URL: http://irs.ub.rug.nl/ppn/18820959X
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Paper provided by University of Groningen, Research Institute SOM (Systems, Organisations and Management) in its series Research Report with number 99B41.

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Date of creation: 1999
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Handle: RePEc:dgr:rugsom:99b41
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  1. Nicolaas J. Vriend, 1996. "A model of market-making," Economics Working Papers 184, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Riechmann, Thomas, 1997. "Learning and Behavoiral Stability - An Economic Interpretation of Genetic Algorithms," Hannover Economic Papers (HEP) dp-209, Leibniz Universit├Ąt Hannover, Wirtschaftswissenschaftliche Fakult├Ąt.
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  9. Tomas Klos, . "Decentralized Interaction and Co-adaptation in the Repeated Prisoner's Dilemma," Computing in Economics and Finance 1997 88, Society for Computational Economics.
  10. Weisbuch, G. & Kirman, A.P. & Herreiner, D., 1996. "Market Organisation," G.R.E.Q.A.M. 96a20, Universite Aix-Marseille III.
  11. Vriend, Nicolaas J, 1995. "Self-Organization of Markets: An Example of a Computational Approach," Computational Economics, Society for Computational Economics, vol. 8(3), pages 205-31, August.
  12. Kirman, Alan P. & Vriend, Nicolaas J., 2001. "Evolving market structure: An ACE model of price dispersion and loyalty," Journal of Economic Dynamics and Control, Elsevier, vol. 25(3-4), pages 459-502, March.
  13. Williamson, Oliver E, 1979. "Transaction-Cost Economics: The Governance of Contractural Relations," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 233-61, October.
  14. Thomas Brenner, 1998. "Can evolutionary algorithms describe learning processes?," Journal of Evolutionary Economics, Springer, vol. 8(3), pages 271-283.
  15. Lane, David A, 1993. "Artificial Worlds and Economics, Part II," Journal of Evolutionary Economics, Springer, vol. 3(3), pages 177-97, August.
  16. Coase, Ronald, 1998. "The New Institutional Economics," American Economic Review, American Economic Association, vol. 88(2), pages 72-74, May.
  17. Leigh Tesfatsion, 1999. "Market Power Effects on Worker-Employer Network Formation in Evolutionary Labor Markets with Adaptive Search," Computing in Economics and Finance 1999 543, Society for Computational Economics.
  18. Robert Axtell, 1999. "The Emergence of Firms in a Population of Agents," Working Papers 99-03-019, Santa Fe Institute.
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