Optimal Advertising Policies for Diffusion Models of New Product Innovation in Monopolistic Situations

Abstract

This paper deals with the determination of optimal advertising strategies for new product diffusion models. We consider the introduction of a new consumer durable in a monopolistic market and the evolution of sales is modelled by a flexible diffusion model. Repeat sales and possible entry of rivals are disregarded but we allow for discounting of future revenue streams and cost learning curve. Using standard methods of optimal control theory we characterize qualitatively the structure of an optimal advertising strategy for different versions of the diffusion model.