Infinite-horizon model with advertising and expected quality

Looking into the history of those existed studies, advertising is normally seen either as a service of information which shifts the demand curve or as a signal which helps the consumers to form an expectation of the quality. So, in this paper my approach is a combination of the two. I will develop a new economic model, in which expected quality parameter is a function of the current advertised quality and the consumer´s last period experience of the goods. The model is set in the infinite time context, in which each firm has to make its production and advertising strategy at the beginning of every period. Furthermore I will demonstrate some extensions to the basic model that lead to some revealing results relating the demand tendency to the advertising strategies.