Dynamic optimal pricing and (possibly) advertising in the face of various kinds of potential entrants

Francoise Bourguignon, Suresh P. Sethi

Research output: Contribution to journalArticle

Abstract

Several nonlinear stochastic models are developed for a dynamic profit-maximizing firm with respect to its price and (possibly) advertising decisions under threat of entry. The optimal price-advertising policies for these models are characterized by the use of the Maximum Principle. While the optimal policy will depend on the assumed functional forms, it is shown that, under certain plausible assumptions, the optimal policy is to increase profit by charging a higher price and decrease the resulting threat of entry by a higher level of advertising.

Original languageEnglish (US)
Pages (from-to)119-140
Number of pages22
JournalJournal of Economic Dynamics and Control
Volume3
Issue numberC
DOIs
StatePublished - Nov 1981

ASJC Scopus subject areas

  • Economics and Econometrics
  • Control and Optimization
  • Applied Mathematics

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