Dynamic Optimal Control Models in Advertising: A Survey

SIAM Review, Vol. 19, No. 4, pp. 685-725, 1977

41 Pages Posted: 17 Jan 2008 Last revised: 13 Aug 2010

See all articles by Suresh Sethi

Suresh Sethi

University of Texas at Dallas - Naveen Jindal School of Management

Abstract

The last ten years have seen a growing number of optimal control theory applications to the field of advertising. This paper presents an up-to-date survey of dynamic optimal control models in advertising that have appeared in the literature.The basic problem underlying these models is an optimal control problem to determine the optimal rate of advertising expenditures over time in a way that maximizes the present value of a firm's net profit streams over a finite or infinite horizon. The profit depends on sales (or an appropriate surrogate), the state variable and the rate of advertising expenditures, the control variable. Sales, in turn, is related to advertising expenditures via a differential or difference equation termed a state equation.The models covered in this survey are organized under four headings: advertising capital models, sales-advertising response models, micromodels, and control-theoretic empirical studies. The discussion involves specifications, methods used, results and the economic significance of various models.The survey concludes with suggestions for extensions and future direction of research.

Keywords: Dynamic advertising models, optimal control, optimal advertising

JEL Classification: M37, M31

Suggested Citation

Sethi, Suresh, Dynamic Optimal Control Models in Advertising: A Survey. SIAM Review, Vol. 19, No. 4, pp. 685-725, 1977 , Available at SSRN: https://ssrn.com/abstract=1084251

Suresh Sethi (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 W. Campbell Road, SM30
Richardson, TX 75080-3021
United States

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