Study of Informative Advertising Competition Model in Duopolistic Market with Relative Profit Object

Jiao Lu

doi:10.4236/jssm.2017.102009

Abstract

To study how the relative profit object influences duopolistic retailers’ advertising decisions, this paper adds the relative profit object on the Hotelling Model to study its influence on advertising decisions. Through the calculation and analysis of the advertising competition model, we found that the balanced advertising level and product price is positively related to product differentiation level. The relationship between balanced profit and product differentiation level is related to the range of each variable. The balanced product price is positively related to advertising cost, while the balanced advertising level and profit is negatively related to advertising cost. The balanced product price, advertising level and profit are negatively related to relative profit ratio. Commonly, the higher the relative object ratio, the advertising level should be higher. This paper gets the opposite conclusion. Through analysis and discussion, we found that this is mainly influenced by the advertising cost level. As in this paper the advertising cost level is restricted to be high, enterprises will choose to raise price for more profit and lower advertising level to reduce cost while the relative profit ratio increases.

Highlights

In the increasingly competitive market nowadays, advertising gradually becomes a significant factor that influences enterprise sales volume
Through the calculation and analysis of the advertising competition model, we found that the balanced advertising level and product price is positively related to product differentiation level
The balanced product price is positively related to advertising cost, while the balanced advertising level and profit is negatively related to advertising cost

Summary

Introduction

In the increasingly competitive market nowadays, advertising gradually becomes a significant factor that influences enterprise sales volume. Through reading papers on advertising competition, we found that the current studies on supply chain advertising competition are almost based on the absolute profit object. Bin Liu (2013) established a cooperation model to evaluate the advertising efficiency in absolute profit object [1]. Boone (2008) applied a newly model called RPD (relative profit difference) to study enterprise competition in certain industries and further proved the robustness by empirical study [3]. Firms take competitors into consideration in making strategies in their advertising campaign It is of much importance in analyzing enterprises’ decision process under relative profit object in advertising competition. Considering the situation, this paper adds the relative profit function in the traditional supply chain advertising competition model to study its influence on. Based on relative profit function, we establish an advertising competition model. This research fits more into real world and shows significant explanation and direction to enterprises

Model Description

Model Analysis

Numerical Examples

Conclusions