ADVERTISING AND OLIGOPOLY:John A. Henning and H. Michael MannNot all economists interested in the competitive process are persuaded
that advertising diminishes the strength of competitive forces. However,
we are among those who believe that this proposition is confirmed by
certain empirical regularities observed by various investigators. What is
not clear, however, is why this seems to be the case, and it is this ignorance to which our paper is addressed.We begin with a brief reference to the findings that lay the basis
for the claim that advertising impedes competition, including our argument that economic theory provides plausible alternative mechanisms
to explain the observed empirical results. We then offer some findings
that suggest how the world may be working. We emphasize "may," for
our efforts to date are necessarily tentative, pending further research.
The working hypothesis suggested by our analysis is that intense advertising apparently follows from high levels of new product introduction
by the leading established firms in an industry. It is this behavior, then,
that requires further analysis if understanding is to be enhanced.Advertising and Oligopoly. The evidence to date permits the following
CORRELATIONS IN SEARCH OF
|• ||Advertising intensity--the ratio of advertising-to-sales revenue--is
positively associated with market concentration. Most studies find
the positive relationship statistically significant, unlikely to be a
chance occurrence. We are aware of three studies, though, that
maintain that the association is positive and significant only up to
a particular level of concentration. After that level the relationship
Questia, a part of Gale, Cengage Learning. www.questia.com
Book title: Issues in Advertising:The Economics of Persuasion.
Contributors: David G. Tuerck - Editor.
Publisher: American Enterprise Institute.
Place of publication: Washington, DC.
Publication year: 1978.
Page number: 253.
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