Interaction of pricing, advertising and experience quality

A dynamic analysis

J.P. Caulkins, G. Feichtinger, D. Grass, R.F. Hartl, A. Seidl, Peter Kort

Research output: Contribution to journalArticleScientificpeer-review

Abstract

For certain goods or services, the quality of the product can be assessed by customers only after consumption. We determine the optimal time paths for pricing, advertising and quality for a profit-maximizing firm facing demand that is influenced both by this experience quality as well as by advertising. In particular, there may exist two optimal trajectories separated by an indifference threshold in which the firm has the same utility of converging to either of the two long-run steady states. Or, to put it in a nutshell: the optimal mix of marketing instruments may lead to history-dependence. One implication is that there may be a market failure such that a government subsidy could help reach the steady state that is best for the Economy in the sense of having greater sales and a higher quality product
Original languageEnglish
Pages (from-to)877-885
JournalEuropean Journal of Operational Research
Volume256
Issue number3
DOIs
Publication statusPublished - 1 Feb 2017

Fingerprint

Dynamic Analysis
Dynamic analysis
Pricing
Marketing
Interaction
Costs
Optimal Trajectory
Profitability
Sales
Long-run
History
Trajectories
Profit
Customers
Path
Experience
Advertising
Business

Keywords

  • System dynamics
  • Marketing
  • Optimal control
  • History-dependence

Cite this

Caulkins, J.P. ; Feichtinger, G. ; Grass, D. ; Hartl, R.F. ; Seidl, A. ; Kort, Peter. / Interaction of pricing, advertising and experience quality : A dynamic analysis. In: European Journal of Operational Research. 2017 ; Vol. 256, No. 3. pp. 877-885.
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Interaction of pricing, advertising and experience quality : A dynamic analysis. / Caulkins, J.P.; Feichtinger, G.; Grass, D.; Hartl, R.F.; Seidl, A.; Kort, Peter.

In: European Journal of Operational Research, Vol. 256, No. 3, 01.02.2017, p. 877-885.

Research output: Contribution to journalArticleScientificpeer-review

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