Dynamics of competing with quality- and advertising-based goodwill |
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| Institution: | 1. Carnegie Mellon University, H. John Heinz III College, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890, USA;2. Department for Operations Research and Control Systems, Institute of Statistics and Mathematical Methods in Economics, Vienna University of Technology, Argentinierstr. 8, 1040 Vienna, Austria;3. Wittgenstein Centre for Demography and Global Human Capital (IIASA, VID/ÖAW, WU),Vienna Institute of Demography/Austrian Academy of Sciences, Wohllebengasse 12–14, 1040 Vienna, Austria;4. Department of Business Administration, University of Vienna, Oskar-Morgenstern-Platz 1, 1090 Vienna, Austria;5. Department of Econometrics and Operations Research & CentER, Tilburg University, PO Box 90153, LE Tilburg 5000, The Netherlands;6. Department of Economics, University of Antwerp, Prinsstraat 13, Antwerp 2000, Belgium;1. Nottingham University Business School, University of Nottingham, Jubilee Campus, Wollaton Road, Nottingham NG8 1BB, UK;2. Naveen Jindal School of Management, The University of Texas at Dallas, 800 W. Campbell Rd., Mail Station SM30, Richardson, TX 75080-3021, USA |
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| Abstract: | Goodwill formation is a complex process and many factors influence the formation of goodwill of a firm. The implications of advertising enabled goodwill formation are reported in several articles in the research literature. In this paper, we extend this stream of research by including quality in the goodwill formation process. We adopt a dynamic model of competition utilizing a differential game approach and derive expressions for open-loop Markovian Nash equilibrium investments in advertising and quality. The insights gained from the analysis of our model and from the equilibrium solutions are presented in the form of research propositions. |
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