The dynamic investment strategy of online advertising based on spillover effect in duopoly competition market

Abstract

Online advertising has become an important marketing instrument for many enterprises, and the impact of enterprises’ online advertising has been increasing rapidly. Significant long-term enterprise profits are dynamically determined by the continuous online advertisement investment strategies implemented. This paper formulates the investment cost function which reflects the characteristics and impacts of online advertising spillover effect to enterprises. Then the improved Lanchester model is used based on the investment cost function. According to the model, our research calculates the Nash equilibrium and does the numerical analysis under open-loop strategy and closed-loop strategy. (1) With the change of time and under the condition of open-loop and closed-loop, when the spillover effect level is higher, the investment amount on fixed-position online advertisement by the enterprises becomes opposite. (2) When the level of spillover effect is strong, the change in the market share of competitive enterprises is related to the initial market share under the condition of open-loop. Under the condition of closed-loop, the market share does not change in accordance with the level of spillover effect. (3) No matter under the open-loop strategy or the closed-loop strategy, the competitive enterprises with lower initial market share should increase the investment of the online advertising in order to attract new customers as early as possible.