Equilibrium pricing and advertising strategies for nondurable experience products in a dynamic duopoly
Article first published online: 10 NOV 2006
Copyright © 1993 John Wiley & Sons, Ltd.
Managerial and Decision Economics
Volume 14, Issue 3, pages 221–234, May/June 1993
How to Cite
Chintagunta, P. K., Rao, V. R. and Vilcassim, N. J. (1993), Equilibrium pricing and advertising strategies for nondurable experience products in a dynamic duopoly. Manage. Decis. Econ., 14: 221–234. doi: 10.1002/mde.4090140303
- Issue published online: 10 NOV 2006
- Article first published online: 10 NOV 2006
The quality of many consumer nondurable goods or services is sufficiently complex or obscure that consumers cannot completely verify the true quality in a single usage. For such ‘experience’ products or services, the accumulated consumer consumption experience of a brand is an important determinant of its sales or market share. The market share of a brand is in turn directly influenced by its own and the competitive price and advertising strategies, given the different levels of quality (among other factors). In this paper, we investigate the impact of the aggregate consumption experience on the firm's dynamic pricing and advertising strategies by developing a formal game-theoretic model of a dynamic duopoly. The model of competition does not yield explicit closed-form expressions for the dynamic price and advertising paths of the two firms. Hence, we simulate the equilibrium paths using a discrete-time algorithm. Our simulation results provide interesting insights into the dynamic equilibrium price and advertising paths, under a variety of realistic competitive scenarios.