IDEAS home Printed from https://ideas.repec.org/p/hal/journl/hal-04127958.html
   My bibliography  Save this paper

Does competition increase advertising?

Author

Listed:
  • Travis Ng

    (CUHK - The Chinese University of Hong Kong [Hong Kong])

  • Tat-Kei Lai

    (LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique)

Abstract

In the Milgrom-Roberts's advertising model, introducing the possibility to die before customers' repurchase alters the firm's advertising incentive to signal hidden product quality. Two opposing forces result, one mechanical and the other strategic. Depending on their relative strengths, the equilibrium advertising can either rise or fall. To the extent that competition threatens firms' survival, our result explains the mixed findings on the causal effects of competition on advertising. Introducing firm deaths in their model offers a new test of whether advertising signals quality, still an unsettled empirical question since Nelson first articulates advertising as a signal in 1974.

Suggested Citation

  • Travis Ng & Tat-Kei Lai, 2023. "Does competition increase advertising?," Post-Print hal-04127958, HAL.
    • Handle: RePEc:hal:journl:hal-04127958
    DOI: 10.1002/mde.3874
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Schmalensee, Richard, 1978. "A Model of Advertising and Product Quality," Journal of Political Economy, University of Chicago Press, vol. 86(3), pages 485-503, June.
    2. Jan De Loecker, 2011. "Product Differentiation, Multiproduct Firms, and Estimating the Impact of Trade Liberalization on Productivity," Econometrica, Econometric Society, vol. 79(5), pages 1407-1451, September.
    3. Elena Cefis & Orietta Marsili, 2005. "A matter of life and death: innovation and firm survival," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 14(6), pages 1167-1192, December.
    4. Navdeep S Sahni & Harikesh S Nair, 2020. "Does Advertising Serve as a Signal? Evidence from a Field Experiment in Mobile Search," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 87(3), pages 1529-1564.
    5. Yan Wang & Shue Mei & Weijun Zhong, 2022. "Advertising or recommender systems? A game‐theoretic analysis of online retailer platforms' decision‐making," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 2119-2132, September.
    6. Brush, Brian C, 1976. "The Influence of Market Structure on Industry Advertising Intensity," Journal of Industrial Economics, Wiley Blackwell, vol. 25(1), pages 55-67, September.
    7. Kihlstrom, Richard E & Riordan, Michael H, 1984. "Advertising as a Signal," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 427-450, June.
    8. Strickland, Allyn D & Weiss, Leonard W, 1976. "Advertising, Concentration, and Price-Cost Margins," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 1109-1121, October.
    9. Lester G. Telser, 1964. "Advertising and Competition," Journal of Political Economy, University of Chicago Press, vol. 72(6), pages 537-537.
    10. Sutton, C J, 1974. "Advertising, Concentration and Competition," Economic Journal, Royal Economic Society, vol. 84(333), pages 56-69, March.
    11. Cady, John F, 1976. "An Estimate of the Price Effects of Restrictions on Drug Price Advertising," Economic Inquiry, Western Economic Association International, vol. 14(4), pages 493-510, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Al-Gamrh, Bakr & Rasul, Tareq, 2024. "Recession-proof marketing? Unraveling the impact of advertising efficiency on stock volatility," International Review of Financial Analysis, Elsevier, vol. 92(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rauch, Ferdinand, 2013. "Advertising expenditure and consumer prices," International Journal of Industrial Organization, Elsevier, vol. 31(4), pages 331-341.
    2. Essling, Christian & Koenen, Johannes & Peukert, Christian, 2017. "Competition for attention in the digital age: The case of single releases in the recorded music industry," Information Economics and Policy, Elsevier, vol. 40(C), pages 26-40.
    3. ÖRS, Evren, 2006. "The Role of Advertising in Commercial Banking," CEPR Discussion Papers 5461, C.E.P.R. Discussion Papers.
    4. Régis Chenavaz & Sajjad M. Jasimuddin, 2017. "An analytical model of the relationship between product quality and advertising," Post-Print hal-01685892, HAL.
    5. Duncan Simester & Yu (Jeffrey) Hu & Erik Brynjolfsson & Eric T. Anderson, 2009. "Dynamics Of Retail Advertising: Evidence From A Field Experiment," Economic Inquiry, Western Economic Association International, vol. 47(3), pages 482-499, July.
    6. Tülin Erdem & Michael Keane & Baohong Sun, 2008. "The impact of advertising on consumer price sensitivity in experience goods markets," Quantitative Marketing and Economics (QME), Springer, vol. 6(2), pages 139-176, June.
    7. Hattori, Keisuke & Higashida, Keisaku, 2014. "Misleading advertising and minimum quality standards," Information Economics and Policy, Elsevier, vol. 28(C), pages 1-14.
    8. Pracejus, John W. & O'Guinn, Thomas C. & Olsen, G. Douglas, 2013. "When white space is more than “burning money”: Economic signaling meets visual commercial rhetoric," International Journal of Research in Marketing, Elsevier, vol. 30(3), pages 211-218.
    9. Jie Bai, 2016. "Melons as Lemons: Asymmetric Information, Consumer Learning and Seller Reputation," Natural Field Experiments 00540, The Field Experiments Website.
    10. Lingfang (Ivy) Li & Steven Tadelis & Xiaolan Zhou, 2020. "Buying reputation as a signal of quality: Evidence from an online marketplace," RAND Journal of Economics, RAND Corporation, vol. 51(4), pages 965-988, December.
    11. Kyle Bagwell & Garey Ramey, 1994. "Advertising and Coordination," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(1), pages 153-171.
    12. Mark W. Nichols, 1998. "Advertising and Quality in the U.S. Market for Automobiles," Southern Economic Journal, John Wiley & Sons, vol. 64(4), pages 922-939, April.
    13. Navdeep S. Sahni & Charles Zhang, 2024. "Are consumers averse to sponsored messages? The role of search advertising in information discovery," Quantitative Marketing and Economics (QME), Springer, vol. 22(1), pages 63-114, March.
    14. repec:eee:labchp:v:2:y:1986:i:c:p:789-848 is not listed on IDEAS
    15. Sartorius von Bach, Helmke, 1992. "Economic Aspects Of Advertising In Agriculture: A Review," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 31(1), March.
    16. Hamilton, Stephen F. & Richards, Timothy J. & Stiegert, Kyle W., 2009. "How Does Advertising Affect Market Performance? The Case of Generic Advertising," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49187, Agricultural and Applied Economics Association.
    17. repec:lan:wpaper:1176 is not listed on IDEAS
    18. Zakaria Babutsidze, 2011. "Returns to product promotion when consumers are learning how to consume," Journal of Evolutionary Economics, Springer, vol. 21(5), pages 783-801, December.
    19. Nils‐Henrik M. von der Fehr & Kristin Stevik, 1998. "Persuasive Advertising and Product Differentiation," Southern Economic Journal, John Wiley & Sons, vol. 65(1), pages 113-126, July.
    20. Soberman, David A. & Xiang, Yi, 2022. "Designing the content of advertising in a differentiated market," International Journal of Research in Marketing, Elsevier, vol. 39(1), pages 190-211.
    21. repec:lan:wpaper:1111 is not listed on IDEAS
    22. Yogesh V. Joshi & Andres Musalem, 2021. "When Consumers Learn, Money Burns: Signaling Quality via Advertising with Observational Learning and Word of Mouth," Marketing Science, INFORMS, vol. 40(1), pages 168-188, January.
    23. Matthias Greuner & David Kamerschen & Peter Klein, 2000. "The Competitive Effects of Advertising in the US Automobile Industry, 1970-94," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 7(3), pages 245-261.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:hal-04127958. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.