The Influence of Product Market Externality on Dynamic Decisions of Monopoly

Abstract

The externality of the goods in the market affects the diffusion process of the product, and also affects the price strategy and advertising strategy that manufacturer makes in the diffusion process of the product. Positive externalitiy can accelerate the speed of the product diffusion, increase product sales, and save the cost of advertising in order to increase enterprise’s profit; Strong negative externality reduces product sales, increases enterprise’s advertising costs and makes losses. Under the market of the monopoly structure, considering the effect of products’ externality, product price and advertising investment on the product’s demand, builds the dynamic decision model of the product and uses the control theory to get the manufacturer’s optimal price strategy and optimal controlling strategy of the advertisement expenditure, and relatively analysis the changing trend of optimal controlling strategy, the product’s diffusion process and manufacturer’s profit on the different condition of positive and negative externality, and obtains some conclusions which are provides theory support for the decision enterprise makes.