Cognitional Behavior and Economic Welfare

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Upshot of the research is to model advertising competition when consumers' memories are limited, and to conduct welfare analysis based upon full-memory "meta"-preference. We chose items of consumption themselves as objectives of memory, and consider the process where advertising message remind people of the presence of a certain consumption item. To justify such situation, we hypothesized dynamically changing tastes of consumers, and competition is over the space in the working memory of consumers on marginal items of consumption.We first developed a general model where consumers dynamic taste is of durable good type, and their limited memories are under influence of inertia Also we assumed that there is a process by which at most one of the firms' advertising messages reach each consumer. For a static analysis of competition including the choice of price, we duplicated the example raised by Shapiro as a counterexample to the Dixit and Norman's welfare criterion. General dynamic analysis in this case is complex and we only list singular solutions.Another attempt is to investigate the case of single firm's decision. We chase campaign competition among two NGO's where one NGO's advertising level is fixed, as the setup for this attempt. We found out oscillatory behavior of NGO's advertising level, and welfare effect depends upon consumers valuation on the activity campaigned.Finally, we analyzed the case of dynamic advertising competition among firms with fixed price and with random preference and independent memories on the side of consumers. By means of Markov Perfect Equilibrium, we came up with an explicit solution which yielded an oscillatory behavior again. Comparative static property seemed very complex, and aided by numerical analysis, we found negative welfare effect when firm's advertising technology successfully shields its client from other firm's campaign message, but this effect is not nay universal.