Dynamic advertising under vertical product differentiation.

Colombo, Luca (2003) Dynamic advertising under vertical product differentiation. Journal of Optimization Theory and Applications, 119 (2) . pp. 261-280. ISSN 1573-2878 [Article] (doi:10.1023/B:JOTA.0000005446.21301.d2)

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.

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