Strategic Interaction With Multiple Tools: A New Empirical Model

The Lanchester model of strategic interaction typically considers only two-firm rivalry and one strategic tool. This paper presents an alternative that considers rivalry among several firms using multiple tools. Marketing decisions are dynamically optimal and use equations of motion for market share that are consistent with optimal consumer choice. Using a single-market case study that consists of five years of monthly data on ready to eat cereal sales, advertising, product development investments and new product introductions, we test our model against a similar Lanchester specification. Non-nested specification tests fail to reject the proposed model, but reject the Lanchester alternative.advertising, brands, cereal, dynamic, Lanchester, oligopoly, strategic interaction., Marketing,

DYNAMIC STRATEGIC INTERACTION: A SYNTHESIS OF MODELING METHODS

Research Methods/ Statistical Methods,

Analytic solutions for Hamilton-Jacobi-Bellman equations

Closed form solutions are found for a particular class of Hamilton- Jacobi-Bellman equations emerging from a differential game among fims competing over quantities in a simultaneous oligopoly framework. After the derivation of the solutions, a microeconomic example in a non-standard market is presented where feedback equilibrium is calculated with the help of one of the previous formulas

Product Pricing when Demand Follows a Rule of Thumb

We analyze the strategic behavior of firms when demand is determined by a rule of thumb behavior of consumers. We assume consumer dynamics where individual consumers follow simple behavioral decision rules governed by imitation and habit as suggested in consumer research. On this basis, we investigate monopoly and competition between firms, described via an open-loop differential game which in this setting is equivalent to but analytically more convenient than a closed-loop system. We derive a Nash equilibrium and examine the influence of advertising. We show for the monopoly case that a reduction of the space of all price paths in time to the space of time-constant prices is sensible since the latter in general contains Nash equilibria. We prove that the equilibrium price of the weakest active firm tends to marginal cost as the number of (non-identical) firms grows. Our model is consistent with observed market behavior such as product life cycles.bounded rationality, social learning, population game, differential game, product life cycle, monopoly, competition, pricing, advertising

Public Policy and Market Competition: How the Master Settlement Agreement Changed the Cigarette Industry

This paper investigates the large and unexpected increase in cigarette prices that followed the 1997 Master Settlement Agreement (MSA). We integrate key features of rational addiction theory into a discrete-choice model of the demand for a differentiated product. We find that following the MSA firms set prices on a more elastic region of their demand curves. Using these estimates, we predict prices that would be charged under a variety of industry structures and pricing rules. Under the assumptions of firms’ perfect foresight and constant marginal costs, we fail to reject the hypothesis that firms collude on a dynamic pricing strategy.Cigarettes, Master Settlement Agreement, Demand, Collusion, Rational Addiction.

THE BERTRAND MODEL OF THE SINGLE MARKET

Starting with the signification of the rationality hypothesis when the agentâ€(tm)s contentment is directly affected by the other agentsâ€(tm) decisions, the theory of games defines solutions for solving different situations of conflict. The economic actors have different behaviours of the Single Market. Oligopoly strategic behaviours were analysed by the Bertrand model. The two types revealed in the work show that strategic interactions are sensitive to the companiesâ€(tm) features, products and markets. Regarding the situation when we have an oligopoly competition, the companies make interdependent decisions in the environment affected by risk and uncertainty of the Single Market. For this reason it is an opportunity to study the structure of oligopoly type of of the Single Market with the aid of non â€" cooperative games.the Bertrand model, the Single Market, theory of games, Nash equilibrium

Advertising, brand loyalty and pricing

This is the post-print version of the final paper published in Games and Economic Behavior. The published article is available from the link below. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. Copyright @ 2008 Elsevier B.V.I consider an oligopoly model where, prior to price competition, firms invest in persuasive advertising and induce brand loyalty in consumers who would otherwise buy the cheapest alternative on the market. This setting, in which persuasive advertising is introduced to homogeneous product markets, provides an alternative explanation for price dispersion phenomena. Despite ex ante symmetry, the equilibrium profile of advertising outlays is asymmetric. It follows that endogenously determined brand loyal consumer bases are not symmetric across firms. This raises a robustness question regarding Varian's “model of sales” where symmetry is exogenously assumed.IVI