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Dynamic Advertising Effects in A Generalised Firm

Published online by Cambridge University Press:  17 August 2016

N.J. Ireland  and
P.J. Law
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Extract

Optimal advertising expenditures in static models of the firm generally satisfy the well-known Dorfman-Steiner conditions (Dorfman and Steiner) under a variety of objective functions (see Peel), including that of the « Illyrian » labour-managed firm as perceived by Meade and Vanek, (see Ireland and Law). If advertising has dynamic effects then the generalisation of such results as that of Nerlove and Arrow to firms with objectives other than pure profit maximisation is considered doubtful by at least one writer (Peel). The purpose of the present note is to argue that there is unlikely to be any fundamental difference in advertising policy between a « generalised » firm such as a labour-managed firm and a traditional profit-maximising firrn after provision has been made to adjust for scale differences (factor input levels).

Peel contrasts Nerlove and Arrow’s result for the profit-maximising firm with the result for the same model but with an objective function of maximising the discounted stream of profits per worker or income per worker.

Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 45 , Issue 2 , June 1979 , pp. 171 - 177
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1979 

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References

REFERENCES

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