The Effect of Advertising on Demand in Business Simulations

Abstract

"Advertising in virtually all business enterprise simulations is an important marketing decision. The purpose of this paper is to explore the nature of advertising and its effect on demand as used within a business simulation. In addition, the nature of the advertising function will be analyzed and a discussion presented on how to create an advertising function. Because business simulations are based on market conditions of an oligopoly, the nature and purpose of advertising within this type of industry must be examined also. The effect of advertising on both firm demand and industry demand is important. The key to modeling the effect of advertising on demand in a business simulation is to create an advertising function for both firm demand and industry demand. The shape of the advertising function still remains an unresolved issue. Also, how the advertising function shifts the demand curve also remains an open question. The advertising function can change the elasticity of demand or leave it unchanged. Also, the advertising function can leave the slope of the demand curve unchanged. How the advertising function changes both firm demand and industry demand are explored. In addition, some detail is given on how to construct an advertising function. "