We use a differential games framework to study two modes of dynamic advertising competition, namely flexible (or closed loop) and committed (or open loop), between two e-retailers that compete for traffic. In closed-loop competition, the advertising contract allows firms to adjust their advertising levels during the advertising campaign. However, in open-loop competition, the contract requires the firms to commit upfront to an advertising plan (however, not necessarily one that advertises at a fixed rate). We ask the following question: Which contract (flexible or committed) is better for the firms (advertising agent)? We find that the firms advertise less and earn more under flexible contracts. As a result, the advertising agent earns less from the two firms under flexible contracts. Flexible and committed contracts become more interesting to study if operational considerations are included. These considerations arise from information technology (IT) costs incurred to process the traffic that arrives at the e-retailers’ websites. Operational considerations reduce the difference in advertising spending between the two contracts. Interestingly, to increase the revenue earned under flexible contracts, the advertising agent should offer such contracts at a price that is discounted relative to committed contracts. The discount exploits the force of competition and induces the firms to spend more on advertising. The optimal discount offered under a flexible contract decreases as the IT cost increases.

中文翻译：

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电子零售中灵活且承诺的广告合同

我们使用差分游戏框架研究竞争广告流量的两个电子零售商之间的两种动态广告竞争模式，即灵活（或闭环）和承诺（或开环）。在闭环竞争中，广告合同允许公司在广告活动期间调整广告水平。但是，在开环竞争中，合同要求企业预先制定一项广告计划（但是，不一定要以固定价格进行广告宣传）。我们问以下问题：哪种合同（灵活的或承诺的）对公司（广告代理商）更好？我们发现，根据灵活的合同，公司的广告较少，而收入则更高。结果，广告代理商在弹性合同下从两家公司获得的收入较少。如果考虑到运营方面的考虑，则灵活而承诺的合同将变得更加有趣。这些考虑是由于处理到达电子零售商网站的流量而产生的信息技术（IT）成本引起的。运营方面的考虑减少了两个合同之间广告支出的差异。有趣的是，为了增加在灵活合同下获得的收入，广告代理商应以相对于已承诺合同打折的价格提供此类合同。折扣利用了竞争的力量，并促使企业在广告上花费更多。弹性合同下的最佳折扣会随着IT成本的增加而降低。这些考虑是由于处理到达电子零售商网站的流量而产生的信息技术（IT）成本引起的。运营方面的考虑减少了两个合同之间广告支出的差异。有趣的是，为了增加在灵活合同下获得的收入，广告代理商应以相对于已承诺合同打折的价格提供此类合同。折扣利用了竞争的力量，并促使企业在广告上花费更多。弹性合同下的最佳折扣会随着IT成本的增加而降低。这些考虑是由于处理到达电子零售商网站的流量而产生的信息技术（IT）成本引起的。运营方面的考虑减少了两个合同之间广告支出的差异。有趣的是，为了增加在灵活合同下获得的收入，广告代理商应以相对于已承诺合同打折的价格提供此类合同。折扣利用了竞争的力量，并促使企业在广告上花费更多。弹性合同下的最佳折扣会随着IT成本的增加而降低。广告代理商应以相对于已签订合同的折扣价提供此类合同。折扣利用了竞争的力量，并促使企业在广告上花费更多。弹性合同下的最佳折扣会随着IT成本的增加而降低。广告代理商应以相对于已签订合同的折扣价提供此类合同。折扣利用了竞争的力量，并促使企业在广告上花费更多。弹性合同下的最佳折扣会随着IT成本的增加而降低。