An Analytical Investigation of Kotler's Competitive Simulation Model

Kotler's well-known dynamic competitive simulation model is investigated by means of analytical methods. Unlike the simulation studies run by Kotler the analytical investigation reveals (1) that the model produces changes in price elasticity over time, which do not appear economically plausible, and (2) that the representation of competitive relations is highly questionable. It is shown that these properties of the model lead to consequences for the optimal pricing and promotion strategy which can hardly be considered as reasonable: Both the optimal prices and the optimal promotion efforts increase continuously over time and—within a certain period of time—the optimal prices under competitive conditions are greater than the respective prices under monopolistic conditions.