A generalization that makes useful the dorfman–steiner theorem with respect to advertising

Haim Levy*, Julian L. Simon

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

Dorfman and Steiner's theorem is trivial with respect to advertising because it deals with only one period. It simply says that a firm should stop with that volume of advertising at which an additional dollar of advertising just produces an additional dollar of net revenue. This note generalizes the theorem to the meaningful multi‐period situation in which the effect of advertising is lagged. The optimizing decision rule is to advertise up to the point at which f′(At) = 1 ‐ bd, where A stands for advertising, b for the customer‐rentention factor, and d for the cost‐of capital discount factor.

Original languageEnglish
Pages (from-to)85-87
Number of pages3
JournalManagerial and Decision Economics
Volume10
Issue number1
DOIs
StatePublished - Mar 1989

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