DYNAMIC STRATEGIC INTERACTION: A SYNTHESIS OF MODELING METHODS

Research Methods/ Statistical Methods,

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,

The dynamics of resource spending in a competition between political parties: general notes on the Red Queen effect

Competition between political parties is a process that unfolds over time whereas formal theories of party competition have tended to take an essentially static, or one-shot, approach. This leaves some gaps in our understanding of the dynamics of campaigning. The aim of this paper is to make up some of this gap. This is done using a differential game theory model to analyse a situation in which support for a party depends on the amount spent on marketing relative to the expenditure of the other party. One of the main results is that, even when voters are not myopic, the logic of the competition forces parties to accelerate expenditure on campaigning during the period between elections. JEL Categories: C61, C72, C73, D72.party competition, dynamics, differential games.

The measurement of market power: short-run, long-run, and dynamic adjustment models

This study presents an industry analysis of market structure and demonstrates the use of theory-consistent models following the NEIO tradition. The objective of this dissertation is to measure the degree of market power within the context of each of three models: short-run, and long-run equilibrium models, and a dynamic cost of adjustment model with strategic capital investment; and to see how inferences of market power differ across the three cases. The models\u27 differences in this dissertation center on the role of investment in capital. Specification tests are conducted between the short-run versus the long-run, and the short-run versus the dynamic models. Time-series data from the U.S. transformer industry producers, 1958-1991 are used to estimate the models;The empirical results suggest that we can reject the hypothesis of price-taking behavior in the output market from the three models. The Lerner\u27s index is lower in the dynamic model than that in the static models. The specification test results show that the long-run and the dynamic models are rejected against the short-run model. However, the result of a joint test with the estimates of the adjustment cost and strategic effect parameters suggests the dynamic cost of adjustment model is superior to the long-run model. As for the strategic effect of capital investment in the dynamic model, the parameter estimate implies that we can reject the null hypothesis that there is no strategic effect of investment in the industry

To segment or not to segment? An investigation of segmentation strategy success under varying market conditions

A computer simulation study is conducted to explore the interaction of alternative segmentation strategies and the competitiveness of the market environment, a goal that can neither be tackled by purely analytic approaches as there is neither sufficient and undistorted real market data available to deduct findings in an empirical manner. The fundamental idea of the simulation is to increase competition in the artificial marketplace and to study the influence of segmentation strategy and varying market conditions on organisational success. Success/failure is measured using two performance criteria: number of units sold and survival of organisations over 36 periods of time. Three central findings emerge: (1) the more competitive a market environment, the more successful the concentrated market segmentation strategy; (2) increased levels of marketing budgets do not favour organisations following a concentrated segmentation strategy; and (3) frequent rethinking and strategy modification impairs organisations that concentrate on target segments

Leader, follower. Strategic investments with asymmetric spillovers.

This paper analyzes the strategic incentives of ¯rst and second movers in sequential invest- ment games with Stackelberg competition and price leadership on the output market. The study shows that the follower can invest more than the leader when the outgoing spillover from the leader to the follower is su±ciently high, taking into account the outgoing spillover of the follower. This result tends to apply in quantity and price settings. It is also shown that when externalities have opposite signs, the ¯rm with the lowest outgoing spillover is invest- ing most. However, with externalities that have the same sign, the asymmetry of spillovers determines who invests most. A beginning is made with the investigation of the robustness of the tendencies reported.Investments; Investment; Spillovers; Incentives; Competition; Market; Studies; Price setting; Sign; Robustness;

Finding Optimal Strategies in a Multi-Period Multi-Leader-Follower Stackelberg Game Using an Evolutionary Algorithm

Stackelberg games are a classic example of bilevel optimization problems, which are often encountered in game theory and economics. These are complex problems with a hierarchical structure, where one optimization task is nested within the other. Despite a number of studies on handling bilevel optimization problems, these problems still remain a challenging territory, and existing methodologies are able to handle only simple problems with few variables under assumptions of continuity and differentiability. In this paper, we consider a special case of a multi-period multi-leader-follower Stackelberg competition model with non-linear cost and demand functions and discrete production variables. The model has potential applications, for instance in aircraft manufacturing industry, which is an oligopoly where a few giant firms enjoy a tremendous commitment power over the other smaller players. We solve cases with different number of leaders and followers, and show how the entrance or exit of a player affects the profits of the other players. In the presence of various model complexities, we use a computationally intensive nested evolutionary strategy to find an optimal solution for the model. The strategy is evaluated on a test-suite of bilevel problems, and it has been shown that the method is successful in handling difficult bilevel problems.Comment: To be published in Computers and Operations Researc

Optimal control of the vidale-wolfe-deal and three populations models of market share dynamics

The purpose of this dissertation is to study the optimal response of salesadvertising models for duopolies using modern optimization software (JModelica.org and JuMP). Specifically, the models adopted were the Vidale-Wolfe-Deal and the Three Populations, a Lotka-Volterra type model. Duopoly analysis is split in two parts: one that solves an optimal control problem with the objective of maximizing the net profit of both firms in one-shot, referred to as simultaneous co-operation, and the other that places the two firms as opponents in a sequential game, each with the individual goal of maximizing net profit on its turn, referred to as sequential competition. The contributions of this dissertation are: providing a stability analysis for the Vidale-Wolfe-Deal model, which shows that any control attaining final constant positive values leads to a stable equilibrium of market shares, proposing a duopolistic version of the Three Populations model, and, lastly, proposing and solving a sequential game based on Leader-Follower iteration for the Vidale-Wolfe-Deal model.O propósito desta dissertação é estudar a resposta ótima dos modelos de venda-publicidade em duopólios utilizando modernos software de otimização (JModelica.org e JuMP). Especificamente, os modelos adotados foram Vidale-Wolfe-Deal e Três Populações (um modelo do tipo Lotka-Volterra). As análises de duopólio são divididas em duas partes: uma, que soluciona o problema de controle ótimo com o objetivo de maximizar o lucro líquido de ambas as empresas de uma só vez, referido como cooperação simultânea, e outra, que coloca as duas empresas como oponentes em um jogo sequencial, cada uma com o objetivo individual de maximizar o lucro líquido durante seu turno, referido como competição sequencial. As contribuições da dissertação são: prover análise de estabilidade do modelo Vidale-Wolfe-Deal mostrando que qualquer controle que atinja valores constantes positivos leva a um equilíbrio estável das fatias de mercado, propor uma versão do modelo de Três Populações para o duopólio, e, por fim, propor e solucionar um jogo sequencial baseado em iterações de Líder-Seguidor para o modelo Vidale-Wolfe-Deal