Journal
EUROPEAN JOURNAL OF OPERATIONAL RESEARCH
Volume 175, Issue 2, Pages 1021-1032Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.ejor.2005.06.020
Keywords
advertising; goodwill; quality; dynamic competition; differential games
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This paper analyzes optimal advertising and quality improvement decisions by duopolist firms competing in a dynamic setting. An extended version of the Lanchester model is formulated where conformance quality and goodwill are both involved in competition for market share. Each competitor's new customer attraction rate depends on its own goodwill, while the disloyalty rate for current customers is influenced by the proportion of defective items. The search for a non-cooperative solution by qualitative as well as numerical means leads to definition of the optimal path for advertising and improvement efforts for each competitor, examined under a wide range of configurations. (c) 2005 Elsevier B.V. All rights reserved.
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