Dynamics of competing with quality- and advertising-based goodwill

Abstract

Goodwill formation is a complex process and many factors influence the formation of goodwill of a firm. The implications of advertising enabled goodwill formation are reported in several articles in the research literature. In this paper, we extend this stream of research by including quality in the goodwill formation process. We adopt a dynamic model of competition utilizing a differential game approach and derive expressions for open-loop Markovian Nash equilibrium investments in advertising and quality. The insights gained from the analysis of our model and from the equilibrium solutions are presented in the form of research propositions.