Advertisement

Computing

, Volume 100, Issue 8, pp 881–905 | Cite as

The dynamic investment strategy of online advertising based on spillover effect in duopoly competition market

  • Huini Zhou
  • Xiaoguang Gu
  • Li Li
Article
  • 153 Downloads

Abstract

Online advertising has become an important marketing instrument for many enterprises, and the impact of enterprises’ online advertising has been increasing rapidly. Significant long-term enterprise profits are dynamically determined by the continuous online advertisement investment strategies implemented. This paper formulates the investment cost function which reflects the characteristics and impacts of online advertising spillover effect to enterprises. Then the improved Lanchester model is used based on the investment cost function. According to the model, our research calculates the Nash equilibrium and does the numerical analysis under open-loop strategy and closed-loop strategy. (1) With the change of time and under the condition of open-loop and closed-loop, when the spillover effect level is higher, the investment amount on fixed-position online advertisement by the enterprises becomes opposite. (2) When the level of spillover effect is strong, the change in the market share of competitive enterprises is related to the initial market share under the condition of open-loop. Under the condition of closed-loop, the market share does not change in accordance with the level of spillover effect. (3) No matter under the open-loop strategy or the closed-loop strategy, the competitive enterprises with lower initial market share should increase the investment of the online advertising in order to attract new customers as early as possible.

Keywords

Spillover effect Lanchester model Online advertising Open-loop strategy Closed-loop strategy 

Mathematics Subject Classification

68U20 91A25 91A35 

Notes

Acknowledgements

This research was supported by grants from the National Natural Science Foundation of China under Grant No. 71271115 and colleges and universities in Jiangsu Province plans to graduate research and innovation projects (No. KYCX17_0307).

References

  1. 1.
    Kim C, Kwon K, Chong W (2015) How to measure the effectiveness of online advertising in online marketplace. Expert Syst Appl 38(2):429–449Google Scholar
  2. 2.
    IBA (2014) 2017 Internet advertising revenue full-year report. http://www.iresearch.com.cn/report/2980.html
  3. 3.
    IBA (2017) Advertising cost forecast report. http://www.a.com.cn/info/domestic/2017/0329/292125.html
  4. 4.
    EnfoDesk (2017). 2016–2017 Advertising cost forecast report. http://wenku.baidu.com/view/c260b124da38376baf1faeec.html
  5. 5.
    Chen JQ, Stallaert J (2011) An economic analysis of online advertising using behavioral targeting. MIS Q 38:4234–4243Google Scholar
  6. 6.
    Rutz OJ, Bucklin RE (2011) From generic to branded: a model of spillover in paid search advertising. J Mark Res 48(1):87–102CrossRefGoogle Scholar
  7. 7.
    Cosmetics industry (2017) The cosmetics industry annual report. http://field.10jqka.com.cn/20170330/c597315434.shtml
  8. 8.
    P&G (2017) The annual reports of P & G Group. http://www.pginvestor.com/CustomPage/Index?KeyGenPage=1073748359
  9. 9.
    Zhao L, Nagurney A (2008) A network equilibrium framework for internet advertising: models, qualitative analysis, and algorithms. Eur J Oper Res 87(2):456–489MathSciNetCrossRefzbMATHGoogle Scholar
  10. 10.
    Karray S, Martín-Herrán G (2009) A dynamic model for advertising and pricing competition between national and store brands. Eur J Oper Res 193(2):451–467MathSciNetCrossRefzbMATHGoogle Scholar
  11. 11.
    Yan RL (2010) Cooperative advertising, pricing strategy and firm performance in the e-marketing age. J Acad Mark Sci 38:510–519CrossRefGoogle Scholar
  12. 12.
    Pei Z, Toombs L, Yan RL (2014) How does the added new online channel impact the supporting advertising expenditure. J Retail Consum 21:229–238CrossRefGoogle Scholar
  13. 13.
    Jafar C, Morteza RB (2016) Cooperative advertising and pricing in a manufacturer-retailer supply chain with a general demand function: a game-theoretic. Comput Ind Eng 99:112–123CrossRefGoogle Scholar
  14. 14.
    Schoonbeek L, Kooreman P (2007) The impact of advertising in a duopoly model. Int Game Theory Rev 9(04):565–581MathSciNetCrossRefzbMATHGoogle Scholar
  15. 15.
    Huang J, Leng MM, Liang LP (2012) Recent development in dynamic advertising research. Eur J Oper Res 220(3):591–609MathSciNetCrossRefzbMATHGoogle Scholar
  16. 16.
    Vidale ML, Wolfe HB (1957) An operations-research study of sales response to advertising. Oper Res 5(3):370–381MathSciNetCrossRefGoogle Scholar
  17. 17.
    Ringbeck J (1985) Mixed quality and advertising strategies under asymmetric information. Optim Control Theory Econ Anal 2:197–214MathSciNetzbMATHGoogle Scholar
  18. 18.
    Ozga SA (1960) Imperfect markets through lack of knowledge. Q J Econ 74(1):29–52CrossRefGoogle Scholar
  19. 19.
    Sethi SP (1983) Deterministic and stochastic optimization of a dynamic advertising model. Optim Control Appl Methods 4(2):179–184MathSciNetCrossRefzbMATHGoogle Scholar
  20. 20.
    Erickson GM (2009) An oligopoly model of dynamic advertising competition. Eur J Oper Res 197(1):374–388MathSciNetCrossRefzbMATHGoogle Scholar
  21. 21.
    Nie JJ (2011) Cooperative advertising model with competing supply chains with differential game. J Syst Manag 20(5):576–588Google Scholar
  22. 22.
    Zhang P, Wang XY (2013) A decision model for multi-market advertising budget allocation based on Vidale-Wolfe model. Chin J Manag Sci 21(4):8–16Google Scholar
  23. 23.
    Sorger G (1989) Competitive dynamic advertising: a modification of the case game. J Econ Dyn Control 13(1):55–80MathSciNetCrossRefzbMATHGoogle Scholar
  24. 24.
    Martin-Herrán G, Mcquitty S, Sigué SP (2012) Offensive versus defensive marketing: what is the optimal spending allocation? Int J Res Mark 29(2):210–219CrossRefGoogle Scholar
  25. 25.
    Wu XJ, Wang XQ, Long ZH, Song TB (2010) The optimal competitive strategy of advertising and product quality for a duopolistic firm based on goodwill. Chin J Manag 7(8):1152–1158Google Scholar
  26. 26.
    Zhang J, Song FG, Sun J (2013) System simulation of price & advertising combined game. Comput Syst Appl 22(5):158–163Google Scholar
  27. 27.
    Nerlove M, Arrow KJ (1962) Optimal advertising policy under dynamic condition. Economica 29(114):129–142CrossRefGoogle Scholar
  28. 28.
    Chintagunta PK (1993) Investigating the sensitivity of equilibrium profits to advertising dynamics and competitive effects. Manag Sci 39(9):1146–1162CrossRefzbMATHGoogle Scholar
  29. 29.
    Frank M, Bass A (2007) Wearout effects of different advertising themes: a dynamic Bayesian model of the advertising-sales relationship. Mark Sci 26(2):179–195CrossRefGoogle Scholar
  30. 30.
    Amrouche N, Martin-Herran G, Zaccour G (2008) Pricing and advertising of private and national brands in a dynamic marketing channel. J Optim Theory Appl 173(3):465–483MathSciNetCrossRefzbMATHGoogle Scholar
  31. 31.
    Jorgense S, Taboubi S (2001) Cooperative advertising in a marketing channel. J Optim Theory Appl 110(1):145–158MathSciNetCrossRefzbMATHGoogle Scholar
  32. 32.
    Chen DY, Yu H (2016) Dynamic cooperative advertising strategies for supply chain. Control Decis 31(4):59–64MathSciNetzbMATHGoogle Scholar
  33. 33.
    Zhang J, Gou QL (2013) Supply chain coordination through cooperation advertising with reference price effect. Omega Int J Manag Sci 41(1):345–353CrossRefGoogle Scholar
  34. 34.
    Reddy PV, Wrzaczek S, Zaccour G (2016) Quality effects in different advertising model: an impulse control approach. Eur J Oper Res 255(11):984–995MathSciNetCrossRefzbMATHGoogle Scholar
  35. 35.
    Dan B, Tian LN, Dong SH (2013) Research on advertising decision-making model between complementary goods enterprises considering spillover effect. Chin J Manag Sci 21(2):66–76Google Scholar
  36. 36.
    Ivan AG (2017) The impact of contextual television ads on online conversions: an application in the insurance industry. Int J Res Mark 36:480–498Google Scholar
  37. 37.
    Song J, Li F (2011) Supply chain coordination through integration of innovation effort and advertising support. MIS Q 38:4234–4243Google Scholar
  38. 38.
    Xu L, Duan JA, Whinston A (2012) Path to purchase: a mutually exciting point process model for online advertising and conversion. Manag Sci 60(6):1393–1412Google Scholar
  39. 39.
    Kireyev P, Pauwels K, Gupta S (2015) Do display ads influence search? Attribution and dynamics in online advertising. Int J Res Mark 33(3):475–490CrossRefGoogle Scholar
  40. 40.
    Li Kannan, Kannan PK (2014) Attributing conversions in a multichannel online marketing environment: an empirical model and a field experiment. J Mark Res 51(1):40–56CrossRefGoogle Scholar
  41. 41.
    Tea Beverage Industry (2016) Analysis of the Status Quo and Development Trends of the 2016 Tea Beverage Industry. https://max.book118.com/html/2016/1005/57126870.shtm
  42. 42.
    Hadadi K, Almsafir MK (2015) The impact of Media Advertising on proton sales. Procedia Econ Finance 23:1405–1410CrossRefGoogle Scholar
  43. 43.
    Erickson G (1997) Dynamic conjectural variations in a Lanchester oligopoly. J Environ Manag 43:1603–1608zbMATHGoogle Scholar
  44. 44.
    Case J (1979) Economics and the competitive process. New York University, New YorkGoogle Scholar
  45. 45.
    Fruchter GE (2001) Advertising in a competitive product line. Int Game Theory Rev 3(4):301–314MathSciNetCrossRefzbMATHGoogle Scholar

Copyright information

© Springer-Verlag GmbH Austria, part of Springer Nature 2018

Authors and Affiliations

  1. 1.School of Economics and ManagementNanjing University of Science and TechnologyNanjingChina
  2. 2.School of EconomicsNanjing UniversityNanjingChina

Personalised recommendations