Optimizing consumer advertising, intermediary advertising and markup in a vertical market structure

64 Pages·2008·1.31 MB·English

by  Naert, Philippe, A

LIBRARY
OF THE
MASSACHUSETTS INSTITUTE
OF TECHNOLOGY

WORKING PAPER
ALFRED SLOAN SCHOOL OF MANAGEMENT
P.
Optimizing Consumer Advertising,
Intermediary Advertising and
Markup in a Vertical Market Structure*
474-70
n
Philippe A. Naert **
August 1970
MASSACHUSETTS
INSTITUTE OF TECHNOLOGY
MEMORIAL DRIVE
50
"DGE, MASSACHUSETTS

OEWEY U8«Aft
Optimizing Consumer Advertising,
Intermediary Advertising and
Markup in a Vertical Market Structure*
474-70
^
Philippe A. Naert **
August 1970
*Based on Chapter 3 of the author's Ph.D. dissertation.
**Assistant Professor of Management, Sloan School of Management,
M.I.T., Cambridge, Mass. 02139
RECEIVED
OCT 5 1970
i. ' ibKMrdES
.
ABSTRACT
Given is a vertical market structure (VMS) which consists of
producers, one intermediary level and consumers. The intermediary
firms are assumed to be independent of the producers. Demand depends
on the number of intermediaries, consumer advertising and intermediary
advertising. In this paper behavior of intermediaries is explicitly
taken into account in constructing optimization models for producers
Two models are presented: In the first the objective of the producers
is to maximize sales, and in the second to maximize profit. The
decision variables are consumer advertising, intermediary advertising,
markup offered by producers to intermediaries. Behavior of inter-
mediaries in incorporated through the use of a pseudo decision variable,
the equilibrium number of middlemen in the VMS.
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