CAUDEX SEPTIMUS

Abstract

As a rule the exponents of a Cobb-Douglas utility function are taken as given parameters. With ordinal utility their absolute values have no importance, though their ratio affects the preferences for competing commodities. In this simple stub we let them be determined trough advertising, more precisely the share of advertising expenditures for any product in total publicity spending. Assuming given unit costs (per newspaper line advert, per television second, and the like), we actually retrieve our first Cournot model, whose solution we know. However, if we also include production costs the system becomes much tougher and this is what we propose here. Assuming zero production costs was almost tradition in oligopoly theory, for instance Cournot, Hotelling, Palander, Stackelberg, all used it for simplification. The popular reference to mineral water, bubbling for free from the ground is not altogether convincing as standard case for production. For this reason we try to avoid such simplification as we have the advantage of computer power which the classics did not.