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Advertising a product to face a competitor entry: a differential game approach

Author

Listed:
  • Alessandra Buratto

    (University of Padova)

  • Stefan Wrzaczek

    (Wittgenstein Centre (IIASA, VID/ÖAW, WU), VID/ÖAW)

Abstract

We analyze a market in which advertising is the dominant marketing tool to create market share. We assume that an incumbent firm dominates the market during an initial stage, and that a new competitor is going to enter the market. In particular, we analyze the different advertising policies that the incumbent firm can adopt, before and after the entry of the rival. We explore three possible behaviours. In the first scenario the firm knows that the competitor will arrive at a given instant. In the second one we assume the original firm to be surprised, in the sense that it does not anticipate the entry of the opponent either because it does not expect the competitor to arrive, or it is not prepared to react before the entry takes place. Finally, in the third scenario, the original firm knows that the competitor will enter at a constant rate. We characterize a differential game model and compare the firms’ behaviours in a strategic perspective.

Suggested Citation

  • Alessandra Buratto & Stefan Wrzaczek, 2018. "Advertising a product to face a competitor entry: a differential game approach," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 41(2), pages 463-487, November.
    • Handle: RePEc:spr:decfin:v:41:y:2018:i:2:d:10.1007_s10203-018-0210-7
    DOI: 10.1007/s10203-018-0210-7
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    References listed on IDEAS

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    More about this item

    Keywords

    Differential games; Nash equilibria; Marketing; Market entry;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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