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Advertising and Cost Reduction

Author

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  • Immordino Giovanni

    (Università di Salerno and CSEF, giimmo@tin.it)

Abstract

Consider a Cournot oligopoly where producers launch new products. At first potential buyers are unaware of the product, and firms decide on levels of production, advertising expenditure and a cost-reducing investment. We find the conditions for complementarities among scale, advertising and innovation strategies to arise. In a duopoly with substitute products all variables are higher for the firm that moves from mass advertising to targeted advertising but decrease for the other. In an oligopoly with complementary products all variables are higher for all firms when they shift away from mass marketing. We conclude by linking our results to the empirical literature on internalization which finds a positive relationship between advertising intensity and foreign direct investment.

Suggested Citation

  • Immordino Giovanni, 2009. "Advertising and Cost Reduction," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-15, April.
    • Handle: RePEc:bpj:bejtec:v:9:y:2009:i:1:n:10
    DOI: 10.2202/1935-1704.1530
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    References listed on IDEAS

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    Cited by:

    1. Sizhong Sun, 2014. "Foreign Entry and Firm Advertising Intensity: Evidence from China," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 45(1), pages 79-97, August.

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    More about this item

    Keywords

    informative advertising; targeting; foreign direct investment; cost reduction;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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