Study of Informative Advertising Competition Model in Duopolistic Market with Relative Profit Object

Abstract

To study how the relative profit object influences duopolistic retailers’ advertising decisions, this paper adds the relative profit object on the Hotelling Model to study its influence on advertising decisions. Through the calculation and analysis of the advertising competition model, we found that the balanced advertising level and product price is positively related to product differentiation level. The relationship between balanced profit and product differentiation level is related to the range of each variable. The balanced product price is positively related to advertising cost, while the balanced advertising level and profit is negatively related to advertising cost. The balanced product price, advertising level and profit are negatively related to relative profit ratio. Commonly, the higher the relative object ratio, the advertising level should be higher. This paper gets the opposite conclusion. Through analysis and discussion, we found that this is mainly influenced by the advertising cost level. As in this paper the advertising cost level is restricted to be high, enterprises will choose to raise price for more profit and lower advertising level to reduce cost while the relative profit ratio increases.