Hole, Alison
(1997)
Dynamic non-price strategy and competition: Models of R&D, advertising and location.
PhD thesis, London School of Economics and Political Science.
Abstract
The dependence on past choices of present opportunities, costs, and benefits is pervasive in industrial markets. Each of the three chapters of this thesis considers a different example of such dependence affecting dynamic behaviour. In the first chapter a single firm's present choices depend on what it has learnt from past experience. The firm is searching for the best outcome of many multi-stage projects and learns as stages are completed. The branching structure of the search environment is such that the payoffs to various actions are correlated; nevertheless, it is shown that the optimal strategy is given by a simple reservation price rule. The chapter provides a simple model of R&D as an example. In the central model of the second chapter firms slowly build up stocks of goodwill through advertising. While many firms start to advertise in a new market, over time a successful set emerges and the others exit. The chapter explores the relative growth of firms and the determination of the number of successful ones. The chapter compares the results to those of a model in which a firm must complete all of a given number of R&D stages before being able to produce. The final chapter considers one of the effects of urban bus deregulation in the UK: bus arrival times are changed very frequently. It is assumed that passengers do not know the timetable and once at a stop board the first bus to arrive. There can be no equilibrium in which an operator's bus arrival times are never revised: otherwise those of a rival would arrive just before and take all the waiting passengers. The chapter considers the pattern of revisions when they are costly. The chapter also shows that fares can be higher with two competing operators than with a single monopolist.
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