Course outline II. Product differentiation Advertising competition Compatibility competition. Heterogeneous goods. Advertising competition I. Advertising and price competition for established products Advertising and price competition for new products
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only good 1 is known
both products are known
demand for good 1
only good 2 is known
demand for good 2
no good is known
Firm 1’s demand function:
monopolistic part of demand
intensity of competition
demand in case of equal prices
is called the cost rate of advertising.
Consider two insurance companies being forced to sell their policies at a fixed price of 5.
Find the equilibrium name recognitions in a simultaneous advertising competition assuming
Now assume that one company is the advertising leader.
scope for raising prices due to incomplete information
? ? >0 <0 =0
(the direct effect - the only effect in this case - should be zero)
Two tax consultants compete by fixing their level of advertising expenses, A1 and A2. The price of 10 for one consulting hour is given by regulation. Demand and profit functions are given by
Calculate and interpret the reaction functions. Find the equilibria! How will the consultants feel about a law prohibiting advertising?
Follower’s reduced profit function:
=0, optimalprices at 3rd stage
=0, optimal advertising at 2nd stage