Séminaire sur les jeux dynamiques et les applications

The impact of product recall on advertising decisions and firm profit while envisioning crisis or being hazard myopic

Arka Mukherjee – HEC Montréal, Canada

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During a product recall, a firm at fault may incur a long-term damage in goodwill. Strategic use of advertising recovers lost goodwill and mitigates the damages made by a product recall. In this paper, using a goodwill based model under a differential game framework, we analyze the equilibrium strategies of two competing manufacturers when either one firm or both can issue a product recall at a random time, and investigate (i) the firms’ equilibrium advertising strategies (ii) analyze the impact of the recall on a firm’s profit (iii) introduce and investigate the effect of "hazard myopia" (a firm’s inability to foresee the crisis likelihood) on a firm’s advertising decisions and profit.