Advertising, goodwill, and the Veblen effect
•Explore the optimal advertising policy using a general advertising-goodwill relationship.•Provide conditions for the existence of the Veblen effect over time.•Demonstrate that the Veblen effect may be more viable that commonly expected. The increase of demand in price, an exception to the law of de...
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Veröffentlicht in: | European journal of operational research 2021-03, Vol.289 (2), p.676-682 |
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Format: | Artikel |
Sprache: | eng |
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Zusammenfassung: | •Explore the optimal advertising policy using a general advertising-goodwill relationship.•Provide conditions for the existence of the Veblen effect over time.•Demonstrate that the Veblen effect may be more viable that commonly expected.
The increase of demand in price, an exception to the law of demand, is known as the Veblen effect. In this work, we consider a profit maximizing monopoly which by means of advertising impacts the price-demand relationship. We show that advertising and goodwill play an important role in making the Veblen effect more prevalent than expected. By employing optimal control theory we capture the evolution of the variables over time which may exhibit the Veblen effect where price and demand move in the same direction. Incorporating this dynamics into firms’ decisions has a promising impact on long-term profit. Consequently, it may even trigger a slew of studies on product line extension, competition and pricing by allowing firms to control their status. |
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ISSN: | 0377-2217 1872-6860 |
DOI: | 10.1016/j.ejor.2020.07.043 |