A Simple Model for Determining Advertising Appropriations

Abstract

This article develops a simple profit-maximizing model that requires knowledge of (a) the sales effect of advertising in the current period at different possible levels of advertising; (b) sales in the prior period; (c) the rate at which sales decline in the absence of advertising; and (d) the interest rate which is the appropriate cost of capital for the firm. This article examines the applicability of the model to general advertisers with and without monopoly power, established and new products, small and large market shares, and in oligopoly.