Modelling advertising budgeting and allocation decisions using modified multinomial logit market share models

Abstract

Previous research suggests that a multinomial logit model of market share (MNL) is inappropriate for equilibrium analyses of advertising competition. This article shows that when employing simple transformations of the advertising effort, the modified MNL model becomes useful in representing situations of diminishing returns to advertising and appropriate for advertising equilibrium analyses without additional difficulties in its empirical estimation. Using the modified MNL model, optimal advertising budgets together with their allocation over time are derived for both the cases of concave and S-shaped attraction (response) functions in a symmetric oligopoly.

Keywords:

• advertising
• game theory
• marketing
• optimisation
• regression