Spatial Advertisement Competition: Based on Game Theory

Zheng-Xun Tan

doi:10.1155/2014/216193

Abstract

Since advertisement is an important strategy of firms to improve market share, this paper highlights duopoly advertisement under the Hotelling model. A model of advertisement under spatial duopoly is established, and corresponding effects of brand values and transportation costs are all captured. This study presents the proportion of sales revenue spending on advertisement. The condition for free-rider in advertisement investment is discussed. Under firms with the identical brand values, if firms' advertisement points to corresponding consumers, price and advertisement investment are all reduced. Therefore, advertisement is discussed under spatial competition in this work.

Highlights

Hotelling [1] initially established a model to offer a rational outlet for spatial competition
Nie [9] addressed the effects of spatial competitions on the innovation
This paper aims to capture the effects of spatial competition on the advertisement and to discuss the relationship between the advertisement investment and the spatial competition by industrial organization theory

Summary

Introduction

Hotelling [1] initially established a model to offer a rational outlet for spatial competition. There exists extensive research on the Hotelling model in many aspects (see [2,3,4,5]). Vogel [6] derived interesting results regarding product differentiation in the Hotelling model. Vogel found that a firm’s price, market share, and profit were all independent of its neighbors’ marginal costs, conditional on the average marginal cost in the market. Vogel proved that more productive firms were more isolated, all else being equal. Nie [7, 8] addressed maintenance commitment under spatial competitions and characterized the relationship between competitions and guarantee commitment under the Hotelling model. Nie [9] addressed the effects of spatial competitions on the innovation

Objectives

Discussion

Conclusion