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Home  >  Transasctions of NAMP VOL3

7. A Mathematical Model of Competitive Advertising and Quality Using Differential Game Theory by Peter E. Ezimadu Transactions of NAMP Vol 3, (Jan, 2017), pp 33 – 38
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Abstract

This work incorporates quality into Sorger’s sales-advertising dynamics, and uses differential game theory to model the relationship between advertising and quality in a duopolistic market. The dynamics is based on Sorger’s model which is an extended version of Sethi’s sales-advertising model. It obtains a Nash equilibrium for the advertising efforts, quality efforts and payoffs. It shows that a firm can use advertising to compensate for low product quality. The work further shows that a firm’s advertising effort should reduce with the quality, and vice versa. In addition, a firm is safe to reduce his quality effort if he observes a reduction in his competitor’s advertising effort. Similarly, a firm should increase his advertising effort if his competitor’s quality effort increases.

Keywords: Advertising; Quality; Differential game; Sorger’s model; Sethi’s sales-advertising model.

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