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Advertising Rivalry in the U. S. Automobile Industry: A Test of Bain's Hypothesis

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  • Lall B. Ramrattan

Abstract

This paper examines Bain's Hypothesis that firms in the automobile industry engage in advertising competition and price collusion. It develops a game theoretic model, basing price on product characteristic and advertising on pure and mixed strategies. Solution concepts such as Cournot, Nash and Prisoner's dilemma are possible. The paper then moves into regression results of advertising outlays in newspaper, general magazines, spot television, and network television, given the firm's cashflow, OPEC influence, and Leader-follower hypotheses. When multicolinearity and serial correlation are adjusted for, the results corroborate Bain's advertising hypothesis with price collusion.

Suggested Citation

  • Lall B. Ramrattan, 1994. "Advertising Rivalry in the U. S. Automobile Industry: A Test of Bain's Hypothesis," The American Economist, Sage Publications, vol. 38(2), pages 40-51, October.
    • Handle: RePEc:sae:amerec:v:38:y:1994:i:2:p:40-51
    DOI: 10.1177/056943459403800205
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