Hybrid Subgames and Copycat Games in a Pulsing Model of Advertising Competition

Abstract

Two recent papers,6,7 introduced the game of pulsing competition (PC) in advertising together with its related subgames of alternating pulsing competition (APC) and matching pulsing competition (MPC) for a duopoly. Following a game theoretic approach in conjunction with a continuous Lanchester model, the above authors basically concluded that when at least one of the response functions is convex, generalising monopolistic advertising pulsation results to a competitive setting might not be adequate. This paper expands the scope of the PC game by incorporating in its structure for the first time in the literature, two versions of a hybrid pulsing competition (HPC) subgame. The article compares the payoffs of the four alternative subgames and provides an analytical solution of a special case of the PC game. In addition, the article also introduces for the first time a variant of the PC game designated by ‘the copycat advertising game’ and shows analytically that for such a game the policy of constant advertising spending over time is optimal for both firms irrespective of the shape of their advertising response functions. The paper illustrates at its end how to solve numerically the expanded PC game in its general form using linear programming and how to derive a solution for a copycat advertising game.

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