Marketing as Diffusion in a Single Population

摘要

The paper examines the optimal advertising policy for a profit-maximizing firm in a single market area. The results are first derived for a spaceless market, indicating the steady-state equilibrium advertising policy and market size. The model is then extended to account for the costs of overcoming distance. It is shown that there is an outward limit to marketing, and that this distance is dependent on the market price and retirement rate of the good and the interest rate. The minimal price necessary for covering any given distance is derived, along with the minimal advertising effort necessary to reach the steady-state market size. It is shown that the steady-state market size, advertising policy, and switching time are all monotonic functions of distance.