Advertising, Its Determinants, and Market Structure

Advertising, Its Determinants, and Market Structure This study derives a formal model of firm advertising behavior and applies it to the industry level to figure out the relationship between advertising and market structure. The firm advertising model shows that both consumer preference andfirm-specific advertising competence jointly determineprofit-maximizing advertising intensity. At the industry level, advertising intensity is represented multiplicatively by consumer preference and a measure of market structure, which reflects the joint distribution of the levels of advertising competence and market shares among firms. The new market structure measure suggests that those single-dimensional measures of market structure such as seller concentration and the Herfindahl index are inadequate in explaining interindustry differences in advertising intensity, and that the long-debated advertising-concentration relationship differs depending primarily on the appropriability of advertising. An empirical analysis of 426 five-digit Korean manufacturing industries shows that an inverted U-shaped relationship between the Herfindahl index and industry advertising intensity is observed for consumer goods industries but a lazy J-shaped relationship for producer goods industries. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Advertising, Its Determinants, and Market Structure

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2002 by Kluwer Academic Publishers
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1023/A:1016020026207
Publisher site
See Article on Publisher Site

Abstract

This study derives a formal model of firm advertising behavior and applies it to the industry level to figure out the relationship between advertising and market structure. The firm advertising model shows that both consumer preference andfirm-specific advertising competence jointly determineprofit-maximizing advertising intensity. At the industry level, advertising intensity is represented multiplicatively by consumer preference and a measure of market structure, which reflects the joint distribution of the levels of advertising competence and market shares among firms. The new market structure measure suggests that those single-dimensional measures of market structure such as seller concentration and the Herfindahl index are inadequate in explaining interindustry differences in advertising intensity, and that the long-debated advertising-concentration relationship differs depending primarily on the appropriability of advertising. An empirical analysis of 426 five-digit Korean manufacturing industries shows that an inverted U-shaped relationship between the Herfindahl index and industry advertising intensity is observed for consumer goods industries but a lazy J-shaped relationship for producer goods industries.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Oct 13, 2004

References

  • Specification and Testing the Profit-Concentration Relationship in Australian Manufacturing
    Bhattacharya, M.; Bloch, H.

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