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A goodwill model with predatory advertising

2011; Elsevier BV; Volume: 39; Issue: 6 Linguagem: Inglês

10.1016/j.orl.2011.10.001

1872-7468

Luca Grosset, Paolo Roberti, Bruno Viscolani,

Digital Platforms and Economics

We investigate the dynamic advertising policies of two competing firms in a duopolistic industry, assuming a predatory phenomenon between their advertising campaigns. The resulting model is a differential game which is not linear-quadratic. We show that there exists a Markovian Nash equilibrium, and that it leads to time constant advertising strategies. According to this model, predatory advertising produces a negative externality: the interference between the advertising campaigns decreases the total demand of the market.