Advertising with Spillover Effects in a Differential Oligopoly Game With Differentiated Goods

Roberto Cellini and Luca Lambertini ()

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

Abstract: We consider a differentiated oligopoly where firms compete a la Cournot in the market phase, and each firms may invest in advertising activity, to enlarge its market size. Each firm`s advertising effort has positive external effects on the market size of all rivals. We derive the open-loop (and the coincident closed-loop) Nash equilibrium, and the optimal behavior of a cartel involving all firms setting both quantities and advertising efforts so as to maximize joint profits. The comparative assessment of these equilibria shows that a cartel may produce a steady state where social welfare is higher than the social welfare level associated wit the non-cooperative setting. This is due to the positive externalities from advertising activity.

Date: 2002
New Economics Papers: this item is included in nep-mic and nep-mkt
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Persistent link: https://EconPapers.repec.org/RePEc:bol:bodewp:430

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