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Market Share Dispersion Among Leading Firms as a Determinant of Advertising Intensity

Market Share Dispersion Among Leading Firms as a Determinant of Advertising Intensity Previous advertising intensity models have failed toaddress adequately the rivalry effects of leadingfirms trying to protect and enhance the marketshares of their brands. We argue that the relativedegree of market share parity among leading firms inoligopolies is a crucial determinant of marketadvertising levels. This study presents a modelthat more thoroughly characterizes market structureby including the variance in the market shares ofthe top four firms along with the concentrationratio. This model is then tested using a unique1987 data set of 58 well-defined U.S. food andtobacco manufacturing markets that used private datavendors for branded product market shares and mediaadvertising aimed at household consumers. We findthat industry advertising-to-sales ratios arehighest in those industries with the highestprice-cost margins, highest concentration, and thosewith equally-sized leading firms. Oligopolists seemunable to control advertising expenses asconcentration increases and they likely overinvestin advertising rivalry when they have similar marketshares. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Market Share Dispersion Among Leading Firms as a Determinant of Advertising Intensity

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References (44)

Publisher
Springer Journals
Copyright
Copyright © 1998 by Kluwer Academic Publishers
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
DOI
10.1023/A:1007704811420
Publisher site
See Article on Publisher Site

Abstract

Previous advertising intensity models have failed toaddress adequately the rivalry effects of leadingfirms trying to protect and enhance the marketshares of their brands. We argue that the relativedegree of market share parity among leading firms inoligopolies is a crucial determinant of marketadvertising levels. This study presents a modelthat more thoroughly characterizes market structureby including the variance in the market shares ofthe top four firms along with the concentrationratio. This model is then tested using a unique1987 data set of 58 well-defined U.S. food andtobacco manufacturing markets that used private datavendors for branded product market shares and mediaadvertising aimed at household consumers. We findthat industry advertising-to-sales ratios arehighest in those industries with the highestprice-cost margins, highest concentration, and thosewith equally-sized leading firms. Oligopolists seemunable to control advertising expenses asconcentration increases and they likely overinvestin advertising rivalry when they have similar marketshares.

Journal

Review of Industrial Organization – Springer Journals

Published: Oct 6, 2004

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